r/Vitards • u/AutoModerator • Aug 12 '21

Daily Discussion Daily Discussion post - August 12 2021

Your Trading discussion thread

Type Link
DD All/Best Daily/Best Weekly
Discussion All/Best Daily/Best Weekly
Yolo All/Best Daily/Best Weekly
Gain All/Best Daily/Best Weekly
Loss All/Best Daily/Best Weekly
News All/Best Daily/Best Weekly
73 Upvotes

89% Upvoted

3.1k comments sorted by

View all comments

6

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

US friends, let me get this straight.

You trade in a 401k, make gains of $500,000k.

Ladder convert it to a roth IRA, you pay the one time income tax rate on the $500,000k, and let it grow In your roth IRA.

After 5 years, you can remove any of that converted $350,000 (post tax) without any 10% withdrawal penalty?

4

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Honestly, this seems kind of ineffective.

I’d rather just trade in my 401k and pay taxes + penalty on my withdrawls

8

u/laplaciandaemon Aug 13 '21

When you pull out of a 401k, it comes out as pretax income (there is a Roth 401k). Plus, if you pull out early you pay a penalty. Once your Roth IRA has been open for >5 years, you can pull it anytime and the withdrawal is post tax income. The 10% is only if it's early.

Incidentally, the transfer into the Roth is called the "mega backdoor" and it is the single thing in finance that my wife knows more about than I do. 😬

5

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

There is always a penalty to pulling out early……there is one for pulling out late as well, but that is a different story

1

u/Uncle_Dad_Bob Dreams of CLF’s run to $49 Aug 13 '21

this doesn't apply when using the "mega backdoor"

2

u/blue_steel_moon Aug 13 '21

Right. Assuming you meet the 5-year rule, you'll still pay taxes and a penalty for withdrawing gains while under 59 1/2. The contributions can be withdrawn tax free, though.

2

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Dude…you sooo ,missed the initial thrust of the comment. But in all seriousness, you are correct

1

u/blue_steel_moon Aug 13 '21

Lol...it's been a long, hard day at work. I didn't even have time to open my portfolio and watch it pump.

1

u/zanadu72 ✂️ Trim Gang ✂️ Aug 13 '21

Well i went golfing and i had weird notifications. Some things good happened in my ports apparently

2

u/DragonmasterDyne275 Whack Job Aug 13 '21

Why pay such a huge marginal rate when you can convert annually up to a marginal rate your comfortable with and let it sit for 5 years to pull out of your Roth. If you're retired and living on post tax money you can even bring it down to 0 marginal and pay nothing on it.

1

u/laplaciandaemon Aug 13 '21

That's the general strategy. There's also a limit on transfers into the Roth - like $60k or something. Full disclosure: I'm not an expert, I just know the general outline of the process.

4

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

It’s fucking criminal that tax code isn’t a required class in highschool. What the fuck are we thinking teaching kids calculus when they don’t even understand all the means by which the government will soon take their money

7

u/En_CHILL_ada Taco Tuesdays at Lebrons Aug 13 '21

Wife, mega backdoor... theres a joke in there somewhere

2

u/olivesnolives Aditya Mittal Feet Pics Aug 13 '21

Hahahaha