I ain't a high roller like some of y'all. But I'm wondering about some questions like "should I (and could I) do a backdoor Roth" or a "Roth 401k" and was wondering if I should talk to a financial advisor. But I don't feel like I'm in the asset bracket for someone who has a "financial advisor" so I'm kind of scared to talk to one.

Did you guys have a financial person to talk to when you didn't have a ton of money? If not, approximately at what level of assets did you talk to a financial advisor?

[–] [email protected] 3 points 2 days ago* (last edited 2 days ago) (1 children)

Apologies, I didn’t intend for this to turn into a wall of text, but I’m posting it anyway. 😅

Usually Roth vs traditional comes down to a judgement call on whether you think it’s more advantageous to pay your marginal tax rate now vs your marginal tax rate in retirement. The optimal answer is unknowable without knowing the future, so you make an educated guess.

People early on in their careers (especially, but not exclusively, where they expect to earn significantly more later) or those who feel that tax rates will be significantly higher in the future during their retirement vs now (eg. you believe taxes are at historic lows and will rise) will often opt for Roth accounts.

Conversely those in a high marginal bracket now who expect to have significantly lower taxes in retirement will often opt for traditional. Indeed if you’re a high W2 earner a traditional 401k is one of the few tax breaks you get.

There’s also something to be said for tax diversification: we don’t know what tax policy will be in the future nor what your income will be in retirement so you can hedge the risk of guessing wrong by putting funds in both Roth and traditional retirement accounts.

People looking specifically at backdoor Roth are usually those who aren’t otherwise eligible to contribute based on income limits.

People looking at mega-backdoor Roth are just lucky (both to have a 401k plan that offers it and to have the money to leverage it).

Regarding a financial advisor: it’s entirely possible to get one-off financial advice for a fee instead of an ongoing commitment or having them manage your assets. The key is to look for a fee-only fiduciary that offers consultations (checkout napfa.org) and not financial “advisors” at banks, brokerages, insurance companies, etc. Those guys aren’t guaranteed to be bad, but they most often double as salesmen who get commission and have a conflict of interest at best.

[–] [email protected] 2 points 2 days ago* (last edited 2 days ago) (1 children)

Thanks!

What's the difference between a backdoor roth and mega backdoor roth? you're moving a 401k into a Roth?

my guess is my income in retirement will be less than my income now so I'm guessing my taxes will be lower?

thanks for the advice about finding an advisor!

[–] [email protected] 2 points 2 days ago

A mega backdoor Roth involves putting money into an “after tax” (not Roth) 401k account and then rolling it over into Roth either within the 401k plan or to an external Roth IRA. It can mean an extra $25k+ in Roth on top of what you’re already contributing to the 401k. Most plans do not offer the features necessary to do this.

Assuming tax policy stays the same, you’d probably lean traditional if you expect your income to be lower in retirement but you’d also want to consider tax diversification. Another aspect is that Roth IRAs will allow you to take contributions back out tax and penalty free before retirement which can be useful if you planned on retiring early.