Your point is well taken but if you strictly want to go by stats the most alarming stat is that most Americans are lousy savers and don't max out any type of account
Sean, this video and your blog on the pro rata rule is appreciated and very helpful. In path 2A are there any circumstances in which the pro-rata rule would apply? Thank you
By that token you would have to repeal 401(K)s as well, since some small business employers do not offer them to employees, while the rest of us can avail of them.
If fair is the standard we are going to use to evaluate the tax code, this is just the tip of the iceberg. Not to mention the definition of fair. But I think you are missing the forest. The whole concept of the 401k is unfair. Small businesses have trouble setting up, maintaining and funding these accounts. Some employers offer them, some don't. That is the same phenomenon as some employers offering mega back doors. Also, because the ~ 65k limit applies to employer contributions, even without the MBD, a high earner has the ability to take more advantage by virtue of X% of their salary being higher. The solution should be dissolution of retirement accounts and a flat tax consumption tax if you want to be fair. At least get rid of the 401k and make IRAs MUCH larger with a regime for employer contributions. But none of that will happen. But I have access to an MBD, so maybe I'm biased.
Hey Sean, are mega back door roths considered conversions thus penalty free withdrawals prior to 59.5? Im weighing mega back door vs taxable. Gains harvesting is enticing plus no capital gains tax with artificially low income. Maybe you could do a video on comparing these two options? Thanks!
Josh, thank you for watching and commenting. I appreciate it. Note that I can't provide any advice particular to your particular circumstances on YT. What I can say is that when one does a Mega Backdoor Roth, the later tax treatment of nonqualified distributions can vary. For example, is the nonqualified distribution coming out of a Roth IRA or a Roth 401(k)? Was it from a Roth IRA that was first routed through a Roth 401(k)? Depending on where the distribution comes from, the tax treatment could be very different, so it's not the sort of thing I can address in comments (would require a longer, more developed post).
I’ve been working for decades at an employer that doesn’t even offer a 401(k)… that has limited me to IRA only, which is crazy. The 401(k) and IRA should have a combined limit, no matter which one you contribute to, make it fair for everyone.
Sooooo, this isn't a video about why I shouldn't do a mega backdoor roth like I thought when I clicked on it. It's a rant about how the currently legal (and has been for a long time) backdoor roth is unfair. Ummm, the entire tax code is unfair. Pretty much everything congress does is unfair. Every spending bill passed by congress is a wealth redistribution from those who earned the money to those who didn't (not usually from rich to poor, but from everyone to political donors, military contractors, and anyone who sufficiently scratches the backs of the politicians). As a general rule, when the government is involved, IT'S UNFAIR. I guess I'll look elsewhere for the cons of the mega backdoor roth.
Fair? I don't think Congress even knows what that means. How about we cap the total amount you can contribute pre and/or post tax to all retirement accounts combined? All other limits removed. Then everyone still has $60k tax advantaged a year they can contribute to whatever kind of account they like. It's still not "fair", because most Americans don't make enough to save $60k/yr, but it's better than the current debacle.
Your point is well taken but if you strictly want to go by stats the most alarming stat is that most Americans are lousy savers and don't max out any type of account
Sean, this video and your blog on the pro rata rule is appreciated and very helpful. In path 2A are there any circumstances in which the pro-rata rule would apply? Thank you
Good video. Fair points.
Agreed on the democratization of higher Roth IRA contributions and a removal of income limits
By that token you would have to repeal 401(K)s as well, since some small business employers do not offer them to employees, while the rest of us can avail of them.
If fair is the standard we are going to use to evaluate the tax code, this is just the tip of the iceberg. Not to mention the definition of fair.
But I think you are missing the forest. The whole concept of the 401k is unfair. Small businesses have trouble setting up, maintaining and funding these accounts. Some employers offer them, some don't. That is the same phenomenon as some employers offering mega back doors. Also, because the ~ 65k limit applies to employer contributions, even without the MBD, a high earner has the ability to take more advantage by virtue of X% of their salary being higher.
The solution should be dissolution of retirement accounts and a flat tax consumption tax if you want to be fair. At least get rid of the 401k and make IRAs MUCH larger with a regime for employer contributions. But none of that will happen.
But I have access to an MBD, so maybe I'm biased.
Hey Sean, are mega back door roths considered conversions thus penalty free withdrawals prior to 59.5? Im weighing mega back door vs taxable. Gains harvesting is enticing plus no capital gains tax with artificially low income. Maybe you could do a video on comparing these two options? Thanks!
Josh, thank you for watching and commenting. I appreciate it. Note that I can't provide any advice particular to your particular circumstances on YT. What I can say is that when one does a Mega Backdoor Roth, the later tax treatment of nonqualified distributions can vary. For example, is the nonqualified distribution coming out of a Roth IRA or a Roth 401(k)? Was it from a Roth IRA that was first routed through a Roth 401(k)? Depending on where the distribution comes from, the tax treatment could be very different, so it's not the sort of thing I can address in comments (would require a longer, more developed post).
I’ve been working for decades at an employer that doesn’t even offer a 401(k)… that has limited me to IRA only, which is crazy.
The 401(k) and IRA should have a combined limit, no matter which one you contribute to, make it fair for everyone.
Sooooo, this isn't a video about why I shouldn't do a mega backdoor roth like I thought when I clicked on it. It's a rant about how the currently legal (and has been for a long time) backdoor roth is unfair. Ummm, the entire tax code is unfair. Pretty much everything congress does is unfair. Every spending bill passed by congress is a wealth redistribution from those who earned the money to those who didn't (not usually from rich to poor, but from everyone to political donors, military contractors, and anyone who sufficiently scratches the backs of the politicians). As a general rule, when the government is involved, IT'S UNFAIR.
I guess I'll look elsewhere for the cons of the mega backdoor roth.
Fair? I don't think Congress even knows what that means. How about we cap the total amount you can contribute pre and/or post tax to all retirement accounts combined? All other limits removed. Then everyone still has $60k tax advantaged a year they can contribute to whatever kind of account they like. It's still not "fair", because most Americans don't make enough to save $60k/yr, but it's better than the current debacle.
Its not fair but get over it. Is it fair that lazy people pay virtually no taxes and get hand outs?