And another $7500 if you are over 50.
Instead of hiring help, you could wander over to Bogleheads and lose yourself in the details!
Ordinarily, it would not make sense to contribute to Roth 401K in your higher earning years, so again, the decision will come down to your own combination of pre & post-tax funds, and other income streams during retirement.
Yes. One addition: employer match put into a Roth portion is also taxed.
I did not know that.
In terms of the mechanics, is the employer match portion reported as taxable income when contributed to Roth 401K?
Alternatively, can an employee elect to have all of his contributions to Roth 401K but have employer match in 401K?
oh yes, good point. I believe that the match still has to go into a pre-tax account, so it becomes taxable when withdrawn, not the year earned/matched by the employer. (later, it can be rolled over into a pre-tax Rollover IRA.)
That is closer to my vague understandingāthat employer match could not go directly to Roth 401K portion.
You sound like youāre a candidate for the mega backdoor Roth, as youāre already maxing out your 401k pre-tax, and doing the backdoor Roth. Itās pretty easy, you just have to ensure you donāt go over the limits. My 401K administrator would just take whatever monthly percentage I designated from my salary in after tax funds, and immediately roll it over into a Roth. The limits are very high. This is separate from the limits of your other Roth IRA, and of course you can still max out your pretax 401K, you just need to stop getting the money withdrawn before you hit the limits. It can be a bit complicated figuring out what you can contribute, but no big deal.
ā Mega backdoor Roth 2024
The mega backdoor Roth allows you to save a maximum of $69,000 in your 401(k) in 2024. How does this add up? The regular 401(k) contribution for 2024 is $23,000 ($30,500 for those 50 and older). You can put an additional $46,000 of [after-tax dollars] into this.ā
Not all employer plans allow a Mega. (Ours did not, and I was the Plan Admin!). But for those that do, itās a great option, depending on marginal tax rates.
Whewā¦ LOTS of information here! Two questions as a result of reading:
Has anyone purchased TIP funds (Treasury Inflation Protected Securities)? Pros and Cons? Our retirement income will come only from SS & Savings (no pensions or other). I ASSUME stock market will rise and fall, and hopefully we can weather that with enough time, by keeping enough liquid funds available for a few years. Inflation, however can be painful with savings.
Any advice regarding capital gains taxes on the sale of your home after a spouse dies? Iāve heard you have 2 years to claim their $250k deduction, but Iāve also heard that the cost basis (or at least half) resets to the date of death. Weāve owned our home for a VERY long time, so should one of us die before we sell, it will make a substantial difference. I havenāt yet researched the government websites, but in the past have been very confused even after reading!
Well, I will say after reading the recent posts I am not convinced to do a conversion to a Roth.
I checked this morning on the retirement portfolio since the market hit all-time highs (thanks JB) and calculated that I have 68% in pre-tax and 32% after-tax brokeage funds. Not in Roth. Also excluded is my wifeās pension which I could do a present value calculation if I really wanted to. House and emergency funds are not in the calculation either.
I am good with that spread. Although it will end up closer to 80-20 by the time we retire.
Hopefully in retirement I spend the pre-tax funds and pass along the after tax mutual funds to my kids and they never have to pay taxes on the gains.
Interesting question.
Iām going to ask about the mega. Thanks to this thread, Iām better prepared to pepper our comp. folks with some pertinent questions. I still need to engage someone to help me with tax structuring while I still can.
Iām also interested to know how well people were able to save receipts for home projects to claim against the amount of capital gains that exceeds the $500,000 allowance. Around Seattle, a lot of people have seen or will seen gains well north of $500,000, and my understanding is that you can reduce that gain my amounts you spent on home improvement. Q: does it include home maintenance? New hot water heaters, new roof, new fencing, etc. etc.? Landscaping? Tree removal? Lol. Donāt laugh. It has cost me thousands of dollars to remove overgrown trees in my yard.
I always make sure the contractors, and most do nowadays, send me an online receipt. So, I can always search my email or archived mail.
My employer only matches in traditional funds. So if I contributed any or all of my funds to Roth 401k their match would be in traditional 401k funds. Other employers might have different policies.
I read the question to be, can you contribute up to the limit in the 401-k Roth, but have the matching $$ go in to the pre-tax account? Or do matching dollars have to track the tax characterization of the contribution? It may either be an IRS rule or a plan rule. Not sure.
In our plan, you have the same family of funds available regardless of whether itās pre-tax or after-tax Roth. I think ā¦
Thatās exactly how it works at my employer.
Not at my place of employment.
At my employer also. Also the match goes into the exact same investment spread as the contributions.
Having my employer putting match/pension fund 401Ks into a Roth was never an option, I donāt even know how you do that, but it sure would have been nice if they allowed it. But thats not connected to whether you choose to put your own funds into a Roth or non Roth 401K.
These are two separate things: step-up and cap gain exclusion
in community property states, teh house gets a full step-up (100%) of basis; non-community property states is generally a half-step up (50%).
cap gain exclusion is $500k for a married couple or $250k for single (assuming primary home in which they lived for 2 yearsā¦), but when one of a married couple dies, the surviving spouse has two years to use the $500k married exclusion, after which it drops to $250k (single).
Re: Your second question.
The surviving spouse has two years to sell after date of death of first spouse in order to claim the $500K exemption.
You are correct that half of the home value steps up upon death of first spouse, and that step-up lives on even if the house is not sold until two years after death of first spouse.
Using an example with numbersā¦
Original purchase price $100K with $1 million value at death of first spouse. Basis becomes $500K + $50K and then if home is sold within two years, there will be no capital gains tax owed b/c of the $500K exemption. If sold after two years (and pretending the value remains at $1 million), taxes will be due on $1 million less $550K less $250K or on $200K. However, any capital improvements will increase basis, thereby lowering the taxable amount. Can also deduct home sale costs such as RE commission.
I donāt know how states handle this, especially community property states but can confirm that this is the way it works in NY, MA, and CT, only b/c I have looked into it in those states.
See page 17. I have a copy from 2018 saved but cannot figure out how to upload here. The 2018 version had a nifty chart with examples, such as central air, sprinkler system, swimming pool (!!). See is this helps.