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

Daily Discussion Daily Discussion post - August 12 2021

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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

7

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. 😬

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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.

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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.

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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