I ask bcuz my dad had noted it and others on here are saying to backdoor to avoid.
It’s a serious question. I don’t know - I’ll look it up. I’m still 7 years away.
Do advisor fees and more defeat the benefits of all this optimization. I’ve always played it straight with taxes. It seems like many of my colleagues have S Corps.
Maybe they save but I play honestly and easy.
I’m just wondering how much the IRMMA will hit. I know my dad has stayed just under. I’ll ask him.
For Medicare premiums, take a look at page 2 of below. It’s the premiums for 2026 based on 2024 AGI. The brackets increase a little each year, like tax brackets. For married filing jointly, there’s an increase pp of about $81 between the lowest and second lowest bracket. So for two of us, a bit under $2000 for the year. They also add $14.50 to the Plan D premium, so another $348 for the year.
Edit to add that we itemize deductions for the state of California (not high enough to beat standard for Federal) so at least a tiny bit will come back in tax savings.
This is all assuming anyone knows what actually will happen to Medicare premiums over the next years.
So $2500 now. So not deathly. Phew.
Thx much.
I agree completely! Huge sticker shock when you have to cut the checks yourself.
IRMAA premiums, on top of the monthly medicare surcharges can be a huge cost factor. Here is a projected 2027 table (brackets and additional premiums for B and D) for married filing jointly from Kiplinger:
(and this is per person)
so if, for example, your MAGI will be $355K, you/spouse together will be paying almost 10K in IRMAA surcharges
And for anyone reading along, distributions to charity from an IRA can begin at 70 1/2 even though RMDs do not begin until 73 or 75. Why would one do this?
If your IRA balance is high, and you would otherwise be making a charitable contribution and don’t have a DAF, this allows you to contribute directly to the charity and not have this distribution subject to income tax as a typical IRA distribution would be, including your RMDs. But no double counting. You cannot itemize the charitable contribution, but the amount of the contribution will reduce your taxable income dollar for dollar.
Those who have reached RMD age can continue to use the QCD vehicle to contribute to directly to a charity. The amount of that contribution will count against your RMD for the year.
There is a new 1/2 of 1% floor before charitable contributions can be deducted as of this year–for those who itemize, so the first 1/2 of 1% of charitable contributions cannot be deducted. (There’s a separate $1000 charitable deduction for those who do not itemize. It’s enough to make your head spin.)
For those who are not 70.5 and plan to make charitable contributions for several years prior to reaching 70 & 1/2, it might be worth funding a DAF b/c then the 1/2 of 1% floor will only be triggered in the year of the DAF creation.
We have a DAF which we funded heavily every other year so we could itemize that year, and then spent id down (Ie gave it away) over 2 years. We still have some $ sitting in a DAF but right now we are donating from my IRA.
You trimmed what I had written. Emphasis on the first words: “If the employer does not match contributions to the Roth 401(k)”
If someone is still in the Income range where eligible to contribute to a Roth IRA–approximately $150,000 single and $240,000-ish married–that means they are in the 22% – or at the upper end – 24% federal bracket. I would still contribute to a Roth 401(k) at work as long as the employer will match Roth 401(k) contributions. Contributing to the Roth 401(k) at work does not preclude someone from contributing to a Roth IRA at home, if you will.
Once income exceeds the Roth IRA limit, it is probably also time to pivot from the Roth 401(k) to the traditional 401(k), and then a back door Roth, if interested.
If one has limited cash flow and can absolutely only contribute the amount required to receive the employer match, and cannot afford to use after tax dollars to do so, then the traditional 401(k) is a great option. Or if someone is mid career at this income level and unlikely to see huge upticks in income, then the traditional 401(k) would probably be the route to go. It’s all tax arbitrage, with a lot of guesswork w/o the benefit of a crystal ball.
It sounds like you are doing exactly what I would do in the same situation, so either we are both wrong or it’s a great idea!
The new wrinkle this year for those who are not yet 70 1/2 and therefore not eligible to make a charitable distribution from the IRA is this new 1/2 of 1% floor on charitable deductions. So instead of funding a DAF every other year as you did so as to bunch itemizations, people may want fund the DAF for multiple years’ contributions so that one is not subject to the 1/2 of one percent floor every other year.
Again so many variables–do you itemize…how much is your charitable giving…the five year window where SALT is capped at $40K instead of $10K and how the reversion to $10K affects your itemization decision going forward…
I don’t know if I’m expressing this clearly.
My youngest was doing 100% traditional 401k and then did a Roth IRA. Now he makes too much money for an IRA so he “may” take part of his 401k and split into traditional and Roth but his income has gone up so much it’s hard not to do 100% traditional and max his HSA and kind of use that as his quasi Roth.
If he doesn’t have an IRA account anywhere, he can do a back door Roth. It will only allow him the $7500 limit, but a good workaround if he doesn’t want to forgo the tax savings of the traditional 401(k) and has an extra $7500 sitting around.
Editing to add: I assume that his employer does not offer a mega back door Roth option?
delete. wrong thread
When you say back door - it’s still taking money from a regular and moving it to a Roth, right? So you still are paying tax on what you are taking it out of the IRA?
Mega back door in a nutshell: you invest after tax into your 401(k) and immediately convert that to Roth. But the 401(k) has to allow this option.
https://www.fidelity.com/learning-center/personal-finance/mega-backdoor-roth
ahhh - so it’s after tax regardless. gotcha. thx
Exactly. The Gov’ment likes to get their share. But this is a “mega” because it allows one to put a lot more into a Roth than just the $7,500 annual IRA contribution limit. Like almost 10x more.
No such option for me.
Back door Roth is for those who earned too much to contribute directly to a Roth IRA. The workaround is to contribute a non-deductible contribution to an IRA, and then promptly convert it to a Roth IRA. Post tax money is contributed, and once the money moves over to the Roth IRA, it will grow tax-free forever.
Mega back door Roth is offered by employers, and as Bunsen said, allows for much higher post tax contributions.
Neither of these scenarios involves taking money out of your traditional IRA. That is a Roth conversion. These two scenarios are for people who are earning over the Roth IRA limit and want to contribute to a Roth IRA, or in the case of the mega back door, have excess post tax income that they would like to get into a Roth 401(k).
Mega back door Roths are not widely offered because of discrimination testing, I think.
He does have a Roth IRA account - he’s been doing that in addition to maxing his traditional 401k and HSA until the new job. He doesn’t want to lose the full tax benefit of the traditional 401k right now but he should still be able to split the traditional 401k with a Roth 401k, if he changes his mind, right? Or is that actually what you are calling a “backdoor” Roth? If so, maybe he can’t do the split then. He’s single and I think he’s a little taken aback with the tax implications that come with a higher salary and the cost of living increase (understatement) moving from Atlanta to northern CA. He’s trying to figure it all out right now before getting there. Nervous mom, without a lot of advice for changes coming.
I just reread your post and I obviously need to read up on backdoor Roth’s because I’m under the wrong impression of how they work.
This is a great explanation. I’m still not getting the benefit of a BDR. If you can do this but you don’t get the benefit of tax free growth (or did I misunderstand this?), why do it? Is it just to reduce your RMD dollars? It sounds kind of convoluted to me.
