Retirement Planning Thread

[Zeno]

No, I haven't. I'll have to look into it. Any tips or pointers to info?

edit: and if the IRS is giving backdoors and info on them then they should just change the rules. More bureaucratic nonsense from our government.

Rather than me trying to explain it here are some good links that explain it much better than I ever could.

Backdoor Roth IRA: Advantages and Tax Implications Explained

Learn the updated 2025 backdoor Roth IRA strategy step‑by‑step—from contribution limits and MAGI thresholds to tax filing and avoiding pro‑rata rule traps.

www.investopedia.com

Backdoor Roth IRA: What It Is, How to Set It Up - NerdWallet

A backdoor Roth IRA is a way to convert a traditional IRA into a Roth IRA. This may be an option if you make more than the Roth IRA income limit, but there are rules.

www.nerdwallet.com

Basically your broker will open a traditional IRA you deposit your after tax money in there and immediately transfer it to the Roth (or any time before it earns any interest--if it earns any interest before you transfer you will have to pay tax).

 

[Devilmaycare]

Rather than me trying to explain it here are some good links that explain it much better than I ever could.

Backdoor Roth IRA: Advantages and Tax Implications Explained

Learn the updated 2025 backdoor Roth IRA strategy step‑by‑step—from contribution limits and MAGI thresholds to tax filing and avoiding pro‑rata rule traps.

www.investopedia.com

Backdoor Roth IRA: What It Is, How to Set It Up - NerdWallet

A backdoor Roth IRA is a way to convert a traditional IRA into a Roth IRA. This may be an option if you make more than the Roth IRA income limit, but there are rules.

www.nerdwallet.com

Basically your broker will open a traditional IRA you deposit your after tax money in there and immediately transfer it to the Roth (or any time before it earns any interest--if it earns any interest before you transfer you will have to pay tax).

Ah, that's right. I remember reading about doing that earlier in the year and meant to look into it further. I need to see how I can do it to best mitigate my taxes. The problem I have is that I already have a Roth and a Traditional IRA. For a couple years when I was self employed about a decade ago I went over the Roth cap and had to convert those years to a traditional. I didn't know about backdooring it back to the Roth then.

So right now I have about $45k in that IRA and it's up about $33k from what I put into into it. So I need to backdoor all of that too. I didn't really want to take a tax hit on it though and need to see when it'll be the least painful. I probably should look into it this year though in case the tax rates start going up.

 

[Folster]

Rather than me trying to explain it here are some good links that explain it much better than I ever could.

Backdoor Roth IRA: Advantages and Tax Implications Explained

Learn the updated 2025 backdoor Roth IRA strategy step‑by‑step—from contribution limits and MAGI thresholds to tax filing and avoiding pro‑rata rule traps.

www.investopedia.com

Backdoor Roth IRA: What It Is, How to Set It Up - NerdWallet

A backdoor Roth IRA is a way to convert a traditional IRA into a Roth IRA. This may be an option if you make more than the Roth IRA income limit, but there are rules.

www.nerdwallet.com

Basically your broker will open a traditional IRA you deposit your after tax money in there and immediately transfer it to the Roth (or any time before it earns any interest--if it earns any interest before you transfer you will have to pay tax).

***The backdoor Roth won't work as intended if you already have an IRA with funds in it*** It is typically only beneficial to high income earners that have all of their pre-tax retirement savings in their 401K.

 

[elindholm]

I have very little debt outside my mortgage and my wife

LOL

 

[Devilmaycare]

***The backdoor Roth won't work as intended if you already have an IRA with funds in it*** It is typically only beneficial to high income earners that have all of their pre-tax retirement savings in their 401K.

So I couldn't take the funds that are currently in mine and convert/backdoor it to a Roth and then start using the backdoor roth method for the future?

 

[Folster]

So I couldn't take the funds that are currently in mine and convert/backdoor it to a Roth and then start using the backdoor roth method for the future?

You should talk to your tax advisor, but you wouldn't want to do it in the same tax year.

Typically a Roth conversion would be taxed as income as your traditional IRA has yet to be taxed.

The IRS considers all of your IRAs to be one account. that's why you can move from one IRA to another with no reporting.

The pro rata rule states that taxation of IRA accounts when converted partially or fully to Roth accounts will be calculated proportionally to the fraction of after tax vs before tax contributions.

Example:
You have $45K pre tax in your IRA. You contribute 5K with the intent to back door it into a Roth. Not so fast. 5K is 10% of the 50K total in your IRA. If you do the conversion you'll only avoid income taxes on 10% of the 5K and will pay income taxes on 90% of it.

If you have zero in your IRAs and make a contribution. You can backdoor all of the contribution and will not have to pay taxes on any of it as 100% of the money in your IRAs is after-tax in that scenario.

Bottom line: Don't try to do a back door conversion if you already have a balance in your IRAs. Regular conversions are find, just know you will pay income taxes on the amount converted

 

[Devilmaycare]

You should talk to your tax advisor, but you wouldn't want to do it in the same tax year.

Typically a Roth conversion would be taxed as income as your traditional IRA has yet to be taxed.

The IRS considers all of your IRAs to be one account. that's why you can move from one IRA to another with no reporting.

The pro rata rule states that taxation of IRA accounts when converted partially or fully to Roth accounts will be calculated proportionally to the fraction of after tax vs before tax contributions.

Example:
You have $45K pre tax in your IRA. You contribute 5K with the intent to back door it into a Roth. Not so fast. 5K is 10% of the 50K total in your IRA. If you do the conversion you'll only avoid income taxes on 10% of the 5K and will pay income taxes on 90% of it.

If you have zero in your IRAs and make a contribution. You can backdoor all of the contribution and will not have to pay taxes on any of it as 100% of the money in your IRAs is after-tax in that scenario.

Bottom line: Don't try to do a back door conversion if you already have a balance in your IRAs. Regular conversions are find, just know you will pay income taxes on the amount converted

Ok, that's what I was thinking it was. I would have to pay taxes of the $45k I have in my old traditional to move it to a Roth. So I'd lose the 20-25% of it. Then next year I could start doing the backdoor on it.

 

[Folster]

Ok, that's what I was thinking it was. I would have to pay taxes of the $45k I have in my old traditional to move it to a Roth. So I'd lose the 20-25% of it. Then next year I could start doing the backdoor on it.

Yes. Or you could try to roll the IRA funds back into your current 401K if you want to avoid a big tax hit.

 

[Ouchie-Z-Clown]

Ok well that make some sense but still $6000 is too low, maybe set it to statutorily be 50% of the max of a 401K or something.

Is there an incentive for companies to set up 401K's aside from recruiting and retention purposes? Do they get some kind of tax break?

There are start up plan and auto features tax credits for employers, but they’re relatively low (around $5k each). And of course contributions are deductible. But more than anything it’s about employers being able to save and to attract/retain talent.

 

[Ouchie-Z-Clown]

I had to look up ESPP because I wasn't sure what that was--sounds like a good deal, I don't have that option but if I did I would sure take advantage of something like that.

I used to contribute 10-15% of my income to my 401k but about 5 years ago I changed to a fixed dollar amount ($750 X 26 pay periods takes me to the max). I make payments monthly to my IRA--$500 a month, which takes me to the max there as well (and contribute what extra $$ I can to my brokerage account). Next year I can start the catch up contributions so I will adjust those numbers accordingly. I guess I am considered a "super saver" but I want to try to guarantee myself a good retirement.

I have read some articles recently about "oversaving" but I don't think I fall in to that category, I have very little debt outside my mortgage and my wife and I still take good vacations (at least in non-pandemic times). I do have some concern about RMD's and taxes but hopefully they raise the age to at least 75 before I get there since they just raised it to 72.

Unless you’re saving well beyond the IRS 402(g) limit I can guarantee you you’re not over saving.

 

[Ouchie-Z-Clown]

I'm not saving to the max in my 401K and not even close in my IRA. I'm about 70 percent of the max in my 401K not 100% sure on that. I probably should without kids my primary excuse is California is expensive but in the last few years it's shifted to I want to have more in cash savings so I'm focusing on that over IRA while still contributing to the 401K.

Yes Employee Stock Purchase Plans are great. I tend to sell right away and lock in the profits, my GF holds hers. Her stock has gone way up(VICR) so it's worked really well and when she does sell, it's long term capital gains.

I'm not overly concerned about taxes and RMD's at the end of the day I'm saving now so I can enjoy my retirement. I don't have kids, there are people I would leave money too but I'm not having to worry about leaving a significant amount to kids so that makes it easier for me to plan on spending it.

My main concern right now is I want to retire June 22 at 56 1/2 so I have to figure out how to bridge that gap to 59 1/2 when I can start withdrawing from my IRA without penalty, and I have to figure out how to bridge the gaps to social security and to medicare. That's largely why I'm really focusing on cash savings right now, some in money market some in stocks so I will have readily available cash to spend during the bridge years.

Curious what the magic age of 56 1/2 is

 

[Russ Smith]

Curious what the magic age of 56 1/2 is

I turn 56 end of November. Our current lease runs out in June 22 so I'll be 56 1/2 at that point and hope to retire at that point. I get stock every 6 months when I hired on at my current job I got ISO stock options. When we got bought out those were set at 24.50 a share so I get a set amount every 6 months. I get that again end of Nov and end of May. I could actually stay another year and get it again I just don't know if I want to we'd have to sign another lease and I don't think I have it in me to stay anotehr year. If I changed jobs that might change but unlikely.

So the end date is basically set by my lease.

 

[Zeno]

Here's What Gen Xers Have Saved for Retirement. How Do You Compare?

Workers in their 40s and 50s have funds socked away for the future. But do they have enough?

richmond.com

recent data reveals that Gen Xers may be behind in the personal savings department. Those born between 1965 and 1980 only have a median $107,000 in retirement savings

I'm firmly a Gen Xer and I could not imagine being that far behind in savings. I think my generation more often than not lives for the right now with no eye on the future...I've seen it with some of my peers, big oversized houses, fancy cars and next to nothing saved for the future.

 

[Ouchie-Z-Clown]

Here's What Gen Xers Have Saved for Retirement. How Do You Compare?

Workers in their 40s and 50s have funds socked away for the future. But do they have enough?

richmond.com

recent data reveals that Gen Xers may be behind in the personal savings department. Those born between 1965 and 1980 only have a median $107,000 in retirement savings

I'm firmly a Gen Xer and I could not imagine being that far behind in savings. I think my generation more often than not lives for the right now with no eye on the future...I've seen it with some of my peers, big oversized houses, fancy cars and next to nothing saved for the future.

I’d say that’s somewhat accurate. But there’s more at play too. Ours is the first generation where the pension had truly dried up. Our grandparents could rely on a pension if employed by the right company. Our parents started to see the extinction of pensions, but many still had them. So we grew up without adults modeling saving the way we have to with defined contribution plans (401(k)s) placing the onus on the employee to save enough, save early enough, and know how to asset allocate and invest on their own instead of having the employer do all of it for them and bear the financial risks.

shoot, I’m a perfect example - though our pop’s had his own practice he implemented a pension which allowed him to be a super saver. I literally missed pension plans being frozen at my first two employers by months in both cases (they froze to new participants) and my current employer doesn’t offer one. And I’ve been in the retirement industry for 27 years!

 

[Zeno]

I’d say that’s somewhat accurate. But there’s more at play too. Ours is the first generation where the pension had truly dried up. Our grandparents could rely on a pension if employed by the right company. Our parents started to see the extinction of pensions, but many still had them. So we grew up without adults modeling saving the way we have to with defined contribution plans (401(k)s) placing the onus on the employee to save enough, save early enough, and know how to asset allocate and invest on their own instead of having the employer do all of it for them and bear the financial risks.

shoot, I’m a perfect example - though our pop’s had his own practice he implemented a pension which allowed him to be a super saver. I literally missed pension plans being frozen at my first two employers by months in both cases (they froze to new participants) and my current employer doesn’t offer one. And I’ve been in the retirement industry for 27 years!

I can agree with that, I personally got started later than I should have (27) and I have been lucky to have a job with a pension to go along with the 401K. I never had retirement advice from my parents (my Dad was both retired military and retired Gov employee--so 2 pensions) and I had to self educate--which I didn't really do until my mid 30's which is when I opened an IRA (before that I had savings bonds & CD's because that was all I remembered from school when they talked of savings).

 

[Ouchie-Z-Clown]

I can agree with that, I personally got started later than I should have (27) and I have been lucky to have a job with a pension to go along with the 401K. I never had retirement advice from my parents (my Dad was both retired military and retired Gov employee--so 2 pensions) and I had to self educate--which I didn't really do until my mid 30's which is when I opened an IRA (before that I had savings bonds & CD's because that was all I remembered from school when they talked of savings).

You’re likely in much better shape than the vast majority of Americans. Even I, an ERISA attorney didn’t start really effectively saving for retirement until I turned 29. Happily I’ve maxed out and invested aggressively since then to put me in fairly good shape, but even I lament the limitations of the 401(k) as a savings vehicle without access to a nonqualified plan.

 

[Jersey Girl]

I am happy to report that I am finally fully vested in the AZ State Retirement System. Wasn't sure I was going to make it to 10 years, but here I am, lol. I also have a supplemental retirement account because I know I won't be able to live off the pension.

I also have 401ks from two previous jobs/careers. Tried to combine them, but since one is through the State of NJ, I can't. So, they're just hanging out there collecting. Plan to talk to a financial advisor soon so we can make sure we are on track. I'll be working til at least 65 since we are older parents and our daughter will be heading to college (if she chooses) when we are 61.

I worry about my siblings as they have nothing saved for retirement and are 47 and 44. Not sure how they are gonna make it.

 

[Dback Jon]

I can agree with that, I personally got started later than I should have (27) and I have been lucky to have a job with a pension to go along with the 401K. I never had retirement advice from my parents (my Dad was both retired military and retired Gov employee--so 2 pensions) and I had to self educate--which I didn't really do until my mid 30's which is when I opened an IRA (before that I had savings bonds & CD's because that was all I remembered from school when they talked of savings).

No Pension here, behind in savings (was basically a Flagstaff bum until age 35, but I traveled a lot, and wouldn't trade that for anything).

Tough saving in my household with a husband that grew up with the double whammy of barrio life seeing friends/neighbors dying young, and growing up during the AIDS epidemic seeing another set of friends dying young, so what was the point of saving for a future that wasn't likely to exist - so is very much a live for the moment type of guy.

 

[Ouchie-Z-Clown]

No Pension here, behind in savings (was basically a Flagstaff bum until age 35, but I traveled a lot, and wouldn't trade that for anything).

Tough saving in my household with a husband that grew up with the double whammy of barrio life seeing friends/neighbors dying young, and growing up during the AIDS epidemic seeing another set of friends dying young, so what was the point of saving for a future that wasn't likely to exist - so is very much a live for the moment type of guy.

It’s never too late to start saving. You will have to be aggressive with your investment for it to help in retirement, but every penny saved will help.

 

[Cheesebeef]

I am happy to report that I am finally fully vested in the AZ State Retirement System. Wasn't sure I was going to make it to 10 years, but here I am, lol. I also have a supplemental retirement account because I know I won't be able to live off the pension.

I also have 401ks from two previous jobs/careers. Tried to combine them, but since one is through the State of NJ, I can't. So, they're just hanging out there collecting. Plan to talk to a financial advisor soon so we can make sure we are on track. I'll be working til at least 65 since we are older parents and our daughter will be heading to college (if she chooses) when we are 61.

I worry about my siblings as they have nothing saved for retirement and are 47 and 44. Not sure how they are gonna make it.

they’re going to pitch a tent in your backyard... just like I’m going to do at Ouchie’s.

 

[Zeno]

No Pension here, behind in savings (was basically a Flagstaff bum until age 35, but I traveled a lot, and wouldn't trade that for anything).

Tough saving in my household with a husband that grew up with the double whammy of barrio life seeing friends/neighbors dying young, and growing up during the AIDS epidemic seeing another set of friends dying young, so what was the point of saving for a future that wasn't likely to exist - so is very much a live for the moment type of guy.

That is a tough situation but hopefully you can do the best you can to save until you both stop working so your golden years are comfortable.

 

[AZCB34]

I retired on August 13 at age 53. My wife will work for a couple more years and she is a couple years younger than me. We have really been great savers and investors without depriving ourselves and our kids of opportunities.

No debt, house paid off. Wife will have full state retirement benefit. We have had patents due relatively young and we don't want to miss out on new opportunities in life.

 

[Zeno]

I retired on August 13 at age 53. My wife will work for a couple more years and she is a couple years younger than me. We have really been great savers and investors without depriving ourselves and our kids of opportunities.

No debt, house paid off. Wife will have full state retirement benefit. We have had patents due relatively young and we don't want to miss out on new opportunities in life.

Congratulations! Hope you have many happy healthy years in retirement!

 

[Ouchie-Z-Clown]

I retired on August 13 at age 53. My wife will work for a couple more years and she is a couple years younger than me. We have really been great savers and investors without depriving ourselves and our kids of opportunities.

No debt, house paid off. Wife will have full state retirement benefit. We have had patents due relatively young and we don't want to miss out on new opportunities in life.

Utopia what y’all have planned for retirement? That’s a loooooot of years to fill.

 

[Matt L]

I am happy to report that I am finally fully vested in the AZ State Retirement System. Wasn't sure I was going to make it to 10 years, but here I am, lol. I also have a supplemental retirement account because I know I won't be able to live off the pension.

I also have 401ks from two previous jobs/careers. Tried to combine them, but since one is through the State of NJ, I can't. So, they're just hanging out there collecting. Plan to talk to a financial advisor soon so we can make sure we are on track. I'll be working til at least 65 since we are older parents and our daughter will be heading to college (if she chooses) when we are 61.

I worry about my siblings as they have nothing saved for retirement and are 47 and 44. Not sure how they are gonna make it.

Do you only have to got 10 years for full pension benefits?