You get 50k dollars tax free no catch what do you plan to do with it?

    • tal@lemmy.todayEnglish
      4·
      2 days ago

      There are some limits on what you can put in a Roth IRA in a year. I don’t think that you can contribute $50k in one year.

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      https://www.schwab.com/ira/roth-ira/contribution-limits

      The maximum total annual contribution for all your IRAs combined is:

      • Tax Year 2026 - $7,500 if you’re under age 50/$8,600 if you’re age 50 or older.

      • Tax Year 2025 - $7,000 if you’re under age 50/$8,000 if you’re age 50 or older.

      For single filers, in 2026, your Modified Adjusted Gross Income (MAGI) must be under $153,000 to make a full Roth IRA contribution.

      Hmm. I dunno if you can defeat that via the Roth backdoor loophole.

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      Sounds like not. That apparently defeats the more-restrictive income-induced contribution limit, but not the absolute cap on contribution limit.

      https://investor.vanguard.com/investor-resources-education/article/how-to-set-up-backdoor-ira

      “Backdoor Roth IRA” is a term that describes a strategy used by high-income earners who can’t contribute to a Roth IRA because their income is above certain limits. Rather than contributing directly to a Roth, the backdoor strategy calls for contributing to a traditional IRA and then converting it to a Roth.

      EDIT: That being said, would be possible to invest it and to annually max out the contribution. Have to pay capital gains taxes on the gains you make prior to getting it into the Roth account.

      EDIT2: If you’re currently working somewhere with a 401(k) that you aren’t maxing out, I think that you can max that out. That apparently increases the annual absolute contribution limit.

      https://www.fidelity.com/viewpoints/retirement/earn-too-much-contribute-Roth-IRA-conversion

      High income taxpayers can still benefit from the tax advantages of a Roth account by converting traditional IRA or 401(k) dollars to Roth, or by contributing to a Roth 401(k) if available. Roth conversions have no income or contribution limits, but do require payment of applicable federal and state income taxes.

      https://www.fidelity.com/learning-center/smart-money/401k-contribution-limits

      For tax year 2026, the most you can contribute to a Roth 401(k), a traditional 401(k), or a combination of the two is $24,500.

      • crystalmerchant@lemmy.world
        3·
        2 days ago

        Yes you can defeat this with both the Roth backdoor loophole, the mega Roth backdoor loophole, and the Solo 401k --> Roth loophole. Or, just put 7.5k in every year for 7 years, presto

        • isleepinahammock@lemmy.blahaj.zoneEnglish
          3·
          2 days ago

          And really, even keeping investments in a taxable brokerage account is fine. Until a married couple makes over $613k, their tax rate for long-term capital gains is 15%. And over that it’s only 20%. The US loves to tax labor and consumer spending, but not investment income. It’s baked into the tax code. If I invest $50k and over 25 years it turns into $350k, I honestly don’t mind paying 15% on those $300k in gains. And if your household income is under $99k, you pay no long-term capital gains tax. This effectively means that those living off of large amounts of taxable mutual funds can cash out up to $99k in gains per year without owing taxes on those gains.

          And there are some oddball circumstances where taxable accounts are even better than tax-advantaged accounts. I once worked at a job where the 401k had terrible options. They simply had no low-cost index funds. They all had terrible expense ratios. I did the math, and the compounding effect of those ratios, eating away at my retirement savings, reducing its compound growth year-by-year. I ran some calculations, comparing investing in the expensive 401k plan or low-cost index funds in a taxable brokerage account. And the taxable brokerage account beat it out over the length of a career. Even when I assumed I would have to pay 15% on all gains made, a cheap taxable investment account can beat out an expensive 401k plan. Certainly not the ideal situation, but people rarely have the luxury of rejecting an employment offer because of the options in a company’s 401k plan.

      • walden@wetshav.ingEnglish
        3·
        2 days ago

        I’m not sure about IRAs, but for 401(k) you can exceed $24.5k of personal contributions by making After Tax contributions.

        Then, if your 401k account supports it (Fidelity does, but I’m not sure if it depends on your company), you can have the After Tax contributions automatically converted to Roth.

        The problem with After Tax is you’ve already paid taxes on it, but also have to pay taxes later on earnings (so might as well put it in a normal investment account at that point). By converting it to Roth you don’t have to pay taxes on earnings.

        This applies to personal contributions. Company contributions and personal contributions combined have a higher limit ($72,000).

        This is usually called “mega backdoor roth”, and from time to time there is talk about closing the loophole.