Now obviously if somebody is in extremis, I can't abandon them just because I'm being recorded. It's not that complicated. Of course, you don't come out ahead financially doing that. Be sure to check out our backdoor Roth IRA tutorial, if you have not yet. So, it's a great account to inherit. And I hope their schools pass them out. It's going to run in just a week on the 21st, but I just read in the news this morning that yesterday was the worst day for coronavirus deaths that we've had yet. The problem is what happens is a behavioral problem. And we divided those into financial literacy 101, 102, 103. Thank you. So, I inherited a little over a hundred thousand dollars from my dad when he died. It really depends on your income, what your income is going to be in 10 years, how big the account is, and how much has to come out. I started contributing to my back door Roth in 2019 by following your very helpful step by step directions. Overall, the total salary paid by the company will be similar so the 199A deduction will be similar. They administer self-directed Solo 401(k)s and IRAs. If we pay her $185K, we pay 12.4%*132,900 = $16,479.60 in Social Security taxes and 2.9%*185,000 = $5,365 in Medicare taxes. If you want to do $56K as a non-deductible employee contribution (assuming you’re an employee of your S Corp like me) you could do it with just $56K of icnome. My husband has no 1099 income right now, but if this is possible I need to convince him to do more speaking conferences, etc to earn 1099 income just for this purpose, right? $32K tax-deferred employer (self-match) contribution into my partnership 401(k)/PSP (I no longer make enough clinically to max it out), $30K tax-deferred contribution into partnership, $19K tax-deferred employee contribution into my WCI 401(k), $37K tax-deferred employer contribution into my WCI 401(k), $19K tax-deferred employee contribution into Katie's WCI 401(k), $37K tax-deferred employer contribution into Katie's WCI 401(k), $19K tax-deferred employee contribution into my partnership 401(k)/PSP (New plan this year allows employee contributions), $32K tax-deferred employer contribution into my partnership 401(k)/PSP, $17.5K tax-deferred employee contribution into my partnership Cash Balance/Defined Benefit Plan (New plan this year affects my contribution), $56K after-tax contribution into my WCI 401(k)/Mega Backdoor Roth IRA, $19K tax-deferred contribution into Katie's WCI 401(k), $37K after-tax contribution into Katie's WCI 401(k)/Mega Backdoor Roth IRA. This is a completely new book that I've been working on really the whole last year or so. It can be stretched for 10 years after your death, by your heirs. And I think there's a lot of truth to that. My understanding is that this is functionally mega backdoor Roth option. And so, whatever the plan's going to let you do and work with in their accounting. However, that assumes that you stayed invested and continue to add new money to those accounts. Yup, our family is voluntarily contributing to the gender pay disparity. And so, what you should do in that case is find a 401(k). I took it from the total international stock allocation, carved it out of that and put it into this small international index fund. It's $7,000 if you're over 50. Straighten out your financial life today! That's They've got to have your consent to do it in California. We'll continue to use that for 2019 for the same reasoning outlined above. Although if it's tax-deferred money, you'll owe taxes on it at your marginal tax rate. Mega Backdoor Roth; Articles & Resources; WCI-1. That's no good. My understanding is that this is functionally a mega backdoor Roth option. Win-win-win. Please clarify my situation: Awesome post! The way you fix it if you screw that up is to recharacterize that Roth contribution into a traditional contribution. Dr. Jim Dahle: Dr. Jim Dahle: From time to time, over the last 16 years, we have occasionally made a little change in our asset allocation. I'm very concerned about my privacy and safety in patients' homes that have video cameras, Alexis, et cetera. Click to learn more! Have less than a hundred percent correlation with something else in your portfolio. PGY4 trying to get finances in order finally and looking to open a new Roth IRA and max it out at $6000 for the 2020 tax year. But it’s her job to fill out the 8606, you just need to check and make sure they did it right. My cash balance plan contribution went down. any thoughts on closed ended MF vs Index We just pay me more. So, if now you're converting $6,200, your low taxes on $200, okay? After-tax 401 (k) contributions … Some people wonder what's the difference between this and the other book? Your email address will not be published. Step 3: Report the transaction with IRS Form 8606. An audio version will be out in a couple of months. Questions from Medical Students from White Coat Investor Podcast on Podchaser, aired Thursday, 21st December 2017. $32K tax-deferred employer contribution into my partnership 401(k)/PSP Your settlement fund, a money market fund, whatever. Step Six:  Report the transactions correctly on your taxes by filling out form 8606. Convert the non-deductible traditional IRA to a Roth IRA by … “What? The White Coat Investor, LLC files taxes as an S Corp. How much salary does she need to be paid in order to be able to contribute $56K to a 401(k) as employee tax-deferred and employee after-tax contributions? We’re putting $112K a year in there and rolled over hundreds of thousands as well, so $125/year is basically a rounding error for us. Inherited IRAs don't count, Roth IRAs don't count, but all those other IRAs, the balance needs to be zero at the end of the year you do the conversion step. Remember the second thing you're supposed to do is to leave the money in cash. You want something that is actually going to make money at a rate higher than inflation over the course of your lifetime. At my w2 job if my employee contributions are 19k and employers contributions are 11k… would I only be allowed to add 26k in my i401k? In This Show:Podcast #194 Show Notes: The Backdoor Roth IRA Made EasySponsorNew Book and New T-ShirtQuote of the DayThe Backdoor Roth IRA Made EasyHistory of Backdoor RothsDoing a Backdoor Roth IRAFixing ErrorsRecommended Reading:Reader and Listener Q&AsAdding Asset Classes to Your Investment PlanRecommended Reading:Tax Implications for Inherited MoneyRecommended Reading:Helping Parents with Financial AdviceBehavioral and Math Components to Personal FinanceLegal Issues with Being Recorded at WorkRecharacterizing Contributions to Retirement AccountsEndingFull Transcription. A backdoor Roth is an option that allows you to invest in a Roth IRA, even if you're over the income limits. The primary consideration when deciding between a traditional or Roth account is the difference between your tax rate as a resident and your tax rate in retirement. Dr. Jim Dahle: Does your business even qualify for the 199A deduction? You might've missed out on some opportunity costs there. Dr. Jim Dahle: How does it feel knowing you’ll likely be in the 37% (eq) tax bracket in retirement knowing that there was no Roth TSP option during your active duty time? Surely, I can out invest that.” The math would agree with you that if you take on a reasonable amount of extra risk, maybe you're likely to beat that return. There just isn't much that you can do about it. The conversion is tax-free because you can get a deduction for the contribution. If it's a one-party, meaning that they can record you without you knowing about it, you better get used to it. Dr. Jim Dahle: They are more like contracts. For IRA distributions, see Publication 590-B, Distribution from Individual Retirement Arrangements (IRAs), or this chart of required minimum distributions to help calculate the required minimum distributions. Dr. Jim Dahle: It now may be more than $6,000, but convert it all and whatever extra that you made in there, you'll just owe taxes on. But if you have a 401(k) or 403(b) at work, they almost surely accept IRA rollovers. Probably not. The whole Mysolo401k, Fidelity en Custodian combo sounds more cumbersome than the “not off-the-shelf’ Vanguard solution I have used for several years. Warning: We're getting into the weeds today. And you're usually looking at paying something like mid four figures for a good financial plan and good advice each year. Dr. Jim Dahle: Dr. Jim Dahle: I'm not sophisticated enough. Dr. Jim Dahle: Dr. Jim Dahle: Dr. Jim Dahle: Convert the Traditional IRA to a Roth IRA. Unfortunately, the options for residents are not clearly spelled out and as I was planning my contributions for this year, it looked like the only accounts I had available were a 403(b) and 457(b) in addition to a DCP plan where an automatic 7% of our salary is contributed to this account and matched by the employer. If it was every time, it wouldn't be nearly as hard of a decision, but most of the time for those short time periods, you lose money. A 401(k) plan for a practice with employees that allows for Mega Backdoor Roth IRA contributions can be designed for you. WCI, I am interested in the list. Dr. Jim Dahle: Now you will have $15k/year for backdoor Roth and $5k for ESPP continuously. If you cannot contribute to a Roth IRA because your income exceeds the income eligibility limit, you can still choose to contribute indirectly through a two step process known informally as the Backdoor Roth.To do the backdoor Roth, you: (1) Make a nondeductible (i.e. I think you should read Mike Piper’s book on Social Security or at least Google “Social Security Break Points”. It’d probably take 5 years or more to beat the benefits of a low tax drag approached taxable account? Shortly after I did a podcast mentioning them, they backed out of the agreement and decided to just lower their fees to $500 up-front and $125/year. Look for asset classes that are real investments. This is so far removed from what the greats like Jack Bogle taught (I always love his quote “The best rule for philanthropy is to give until it hurts, as much as you can, because none of us can get through life all by ourselves”). Because as it is, it's almost twice as thick as the original White Coat Investor book. If this is something that really bothers you a lot, maybe it's time to stop doing healthcare in people's homes and to move into an office-based practice. Taking care of that pro rata issue by looking around for all those forgotten IRAs. We were only getting a 37% * 80% = 29.6% deduction. It made a lot of sense to use it in the WCI 401(k) when I was making more money practicing medicine than running WCI. In most states, it receives significant asset protection from your creditors in a bankruptcy situation. ASSESSMENT: Job stability Investment horizon Risk tolerance Target emergency reserves Debt RISK MANAGEMENT TOOLS: Disability Insurance Buy in residency Future purchase option rider Own occupation Buy with post-tax dollars Health Insurance (see HSA below) Life Insurance (married or … The quote of the day comes from Sunny Sakar who said. She has essentially inherited 401(k)s and IRAs. We expect to give away 30,000 of these. Not a big deal. If you have a choice to leave a Roth IRA to heirs or a traditional IRA to heirs, and you're also leaving money to charity, it’s far better to leave the tax deferred money to charity. But it's easier to just leave your money in cash while it's in the traditional IRA. iQ401k is a White Coat Investor recommended retirement plan services provider. There are a few steps to the backdoor Roth IRA, but before we get into those, let's talk about why we talk about the backdoor Roth IRA around here. If there isn't, maybe you should skip that asset class. Maybe some of us will be out of that tunnel soon and we can wrap up this pandemic in a few months, it’s my hope. Dr. Jim Dahle: Dr. Jim Dahle: Employ your time in improving yourself by other men's writings, so that you shall gain easily what others have labored hard for. Comment below! Is this viable/legal as long as I am not part of a controlled group? That income is deferred from her salary, and so doesn't count toward Ordinary Business Income for the 199A deduction, so it still provides us a 37% (federal) deduction. That is probably the only real general principle we could put out there that applies to all of those situations. Dr. Jim Dahle: This sort of thing comes up a lot in discussions of paying off debt versus investing, for example. Whether that's going in tax-deferred accounts, tax-free accounts, taxable accounts, whatever, that's pretty incredible. Dr. Jim Dahle: Of course, when there are two companies involved and 4 new accounts (a tax-deferred and an after-tax for both of us and we didn't bother with the Roth accounts since we figured we'd just do rollovers to our Vanguard Roth IRAs) a few minor things were screwed up and had to be redone. I already had accounts at both (partnership 401(k) at Schwab and HSA/Credit Cards at Fidelity), but decided to go Fidelity because I thought I might just use the 0% ER index funds there. In the ER people want to record stuff all the time. If you screwed that up and put it into a traditional IRA and invested in something else and left it there for months or even left it there for just a few days and made money. Let's take a listen. It's subtitled how medical and dental students can secure their financial future. Dr. Jim Dahle: I can let them sit there for two hours until they decide they're not going record me anymore and it won't cause any sort of an abandonment issue or any sort of ethical violation. PGY4 trying to get finances in order finally and looking to open a new Roth IRA and max it out at $6000 for the 2020 tax year. Let me know if you find someone specializing in combating cheapness to interview. Do you have any advice for me on advising her what to do? Luckily I have been a bit sow/lazy. Since it seemed that I had no other Roth opportunity besides my Roth IRA, I contributed about $16,000 during 2020 to the 457(b). Remember that income is not eligible for the 199A deduction because medicine is a specified service business and our taxable income is well over the $315-415K limit. This deduction, designed to keep pass-thru business owners (sole proprietorships, partnerships, and S Corps) competitive with C Corps after the Tax Cuts and Jobs Act of 2017 (TCJA), is our new largest deduction (it used to be retirement account contributions and charitable deductions). Our most recent one came in from Jrober, who says “Jim Dahle has made me a money genius. In the past, at least over any reasonably long period of time, a portfolio that's 100% stocks has outperformed a portfolio with any percentage of bonds in it, at least among US markets over the time periods that we have. Step two, just leave it in cash. This isn't my first rodeo, but I was surprised that Fidelity didn't want my business in that respect. My understanding is that we are limited to 19000 employee contributions across all the 401ks. If you have not done your Roth IRA contribution yet this year, let this episode be the motivation to get it done. You can spend it on an incredible vacation around the world for three months, or you can put it in an investment account. Dr. Jim Dahle: If you have no barriers like a large IRA balance that can't be easily moved, I highly encourage you to contribute annually to a Roth IRA via the backdoor. Did you make any changes to your retirement plans in response to the new 199A deduction? It brings you into the beginning of residency and talks about important financial issues that need to be addressed early in residency. You do the conversion late and you pay the taxes. I am now only doing Roth, due to the Section 199. We're talking about real estate, we're talking about stocks, we're talking about small business, that sort of stuff. I'm wondering if there's any tax implications on that money. Enough said”. No way. Or it's an interest-bearing instrument. The inspiration in this one comes from the community. I’m not sure you can take it over your lifetime like the old stretch IRA though. 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