Someone else answered above saying that matches must be deposited in pre-tax accounts, which is what I had suspected.
I understand the decision making process of Roth or non-Roth and have posted far too much on this topic already!
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Iâve made some financial mistakes along the way (eg, having a wealth manager). I have full control of my finances now and have decided that converting to a Roth doesnât make sense for me. First off, I canât do a mega backdoor because of employer 401k contributions. And I am 3-5 years out from retirement and am in the highest tax bracket. I will have only capital gains and qualified dividend income in retirement, so will have a very low tax rate. When I started my career, it would have made sense.
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We did a huge Roth conversion on a high tax year (that had no Roth restrictions). Maybe 2010? Giant tax bill, but we had other non-retirement funds to pay to pay that. That was critical on pulling the trigger. Our friends thought we were crazy, but in the end it was a very good decision.
We encourage our adult kids in their early career years to convert to Roth. They both max out retirement savings, so theyâre on board.
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I know a number of people who made significant Roth conversions in 2008 or even better 2009 when the market was at its low. A 2009 conversion would have hit your taxes filed in April 2010. Excellent timing on your part!
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For community property states, full step up, so basis upon date of death of first spouse becomes FMV or $1m in your example.
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Thanks! I think you and I were posting at same time so I saw your explanation after my post appeared.
How did you determine it was a very good decision? What was the basis of your determination?
Just wandering what measurements you used?
The S&P was at 1100 in March of '09 and it is at 5300 today.
$100K invested in March 2009 would be worth $780K today. Thatâs a lot of tax-free gains.
MacMom would have to answer about her specific situation (taxes paid on $100K converted amount while working vs taxes to be paid in retirement on $780K total account value) but I am hard pressed to imagine a scenario where that conversion didnât make sense.
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No, you can not deduct home maintenance, page 9-10 here describes what is and isnât allowed:
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There must have been a heck of a lot of re-invested dividends to make that $100K be worth $780K today, because with growth of 1100 to 5300 doesnât make it $780K.
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yes, definitely not routine maintenance, in which tree removal falls under. That said, some things can move from maintenance to capital if they are related to a capital project.
For example, painting kitchen is generally maintenance. Painting kitchen as part of a kitchen remodel gets rolled into the capital costs of the remodel.
Removing trees = maintenance. Removing trees to repave a driveway can be capital.
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It is not just receipts. For every project, keep copies of: signed contract, approved permits where applicable, and proof of payment. Thatâs what the IRS will ask for if you ever get questioned.
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I notice it says cost includes the down payment and any debt (so the purchase price, of course) and certain settlement/closing costs. It doesnât say mortgage interest ⊠just mortgage, which is vague. Do you know if you can include interest? Or just the principal amount borrowed? Prob. not if it was deducted on our income tax returns. I paid the mortgage off so long ago, and refiâd twice ⊠I donât know that I even remember the name of the first bank and doubt theyâd have the records. Maybe just old tax returns I guess.
Certainly it was a bold move. We had two kids gearing up for college, and their 529s took a hit in the down market. It worked out that the 2009 HS grad received some nice merit scholarships; and by 2012 the younger oneâs 529 had recovered a bit, and also received enough scholarships to help with the gap.
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I keep a spreadsheet of allowable improvements over the years, including company, dates, amounts, and whether I have a Receipt or cancelled check. I keep the receipts in a file, and need to scan them in one of these days. The amount we put into the house almost equals our initial purchase price, and should really decrease any capital gains when we sell
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It is hard to keep track of the complexities of the Roth conversion. I have done backdoor Rothâs for a few years, but was making very large contributions to a Defined Benefit Plan until I was very close to hitting the cap for a DBP so I rolled it over into a 401k. Now, I pay the maximum I can into the 401k and also the backdoor Roth. Not clear if I should have done Rothâs earlier (my tax bracket did not seem to allow).
I am, in effect, transferring capital from post-estate tax money (in a trust) to Roth IRAs so that we get tax free appreciation until the kids finally have to withdraw from it.
Massachusetts has a state estate tax. I have tried to take everything out of my estate through the trust, but I think the 401k and our primary residence have to be part of the estate. If I were to die early, there would be pretty big estate.
If the house goes to the kids, am I correct in assuming that there would be an automatic stepup in basis when we die? We have a substantial capital gain so it would be good to avoid paying tax on that. Not much I can do about the 401k (except move to a state without an income tax).
@momof3, we record all expenses in Quicken, so we have access to all of our expenditures. I have kept the major contracts, but it is getting easier as people now do electronic contracts.
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I just plugged $100K into this calculator and it shows $898K with dividends reinvested from March 2009 to today. I am sure there are other calculators out there, and one would need to consider the returns with dividends reinvested on the tax payment realized with the 2009 conversion.
Do you think it wasnât a good idea to convert in 2009?
Hereâs another random data point.
If you invested $100 in the S&P 500 at the beginning of 2009, you would have about $810.01 at the end of 2024, assuming you reinvested all dividends. This is a return on investment of 710.01%, or 14.70% per year .
Also, I was wrong above about the March 2009 low.
âThe S&P 500 hit an intraday low of 666.79 on March 6, 2009, and a closing low of 676.53 on March 9.â
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I think I recall reading that if tree removal following a storm is also covered, which seems a stretch, but some of the other examples do also.
My understanding is that your house will receive a step-up in basis if you both die, or a step-up for half the house when only one spouse dies. Mass will still tax your estate above $2 million. A slight improvement since 2023 with the elimination of the cliff that had existed before then once you went one dollar over $1 million.
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You didnât ask me but I donât think it was a bad time to convert but I also donât think in the long run it really makes as much difference as it first appears.
How much extra in taxes was paid to do that conversion? 25k, 30k more?