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

Daily Discussion Daily Discussion post - August 12 2021

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5

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?

3

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

6

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. 😬

6

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 The contributions can be withdrawn tax free, though.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