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Gaming the retirement system with the Mega Backdoor Roth IRA

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Here’s an interesting retirement funding idea that may appeal to some of you. It’s rattled around certain blogs and forums the past few months; as best I can tell it starts here on White Coat Investor, an investing website aimed at doctors. I first saw it on FatWallet Financial, though there’s also some discussion on Bogleheads and on Mr. Money Moustache.

Enough buildup–what is the Mega Backdoor Roth IRA? It’s a clever circumvention of standard Roth IRA funding limits. I’ll quote the original article from White Coat Investor:

Some 401Ks not only permit $17.5K of either tax-deferred or Roth contributions, but ALSO permit you to contribute your own, after-tax money into the plan up to the $52K limit.  A good example of this is the TSP for deployed military doctors.  It isn’t a particularly good deal to just contribute after-tax money, UNLESS you can then get that money out and convert it to a Roth.  Voila- A Mega Backdoor Roth IRA.  Instead of only being able to contribute $5.5K per year, all of a sudden you can contribute $34.5K (plus the $5.5K in your personal and $5.5K in your spousal IRA.)  If you’re over 50 and put your first $23K (remember the $5.5K catch-up contribution) into a Roth 401K, you could potentially put up to $65K per year into a Roth IRA. 

Not everybody can do this. You need to have a certain type of 401k plan:

  1. The plan must allow for after-tax contributions above and beyond the $17,500 employee contribution limit, preferably up to the $52,000 limit. So you can put in your $17,500 that is either tax-deferred or Roth, then contribute another $34,500 to the plan in after-tax dollars, similar to a non-deductible traditional IRA.
  2. The plan must allow for non-hardship in-service withdrawals of after-tax contributions.
  3. The plan should prohibit non-hardship in-service withdrawals of tax-deferred contributions (not mandatory, but a useful feature.)
  4. The plan should allow for “lump sum” contributions (not mandatory, but useful.)

I’m not sufficiently knowledgeable to comment on whether or not this is a good idea, hopefully Matt or George will weigh in. I just wanted to air it out here since I hadn’t heard of it before. What do you all think about this one?

 

USAir credit card improves, a guide to stopovers, and Marathon Man speaks

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USAIR CARD GETS A LITTLE BETTER:Via Hack My Trip, the Barclaycard USAir card is getting a little better. Starting April 30, cardholders will get 1 free checked bag for themselves and up to 4 companions.

ARCANE FREQUENT FLYER RULES–IN PICTURES!: Travel Is Free has another typically helpful post laying out the quirks of the major airlines’ routing rules. Check this out:

Courtesy of Travel Is Free

Why would you want to do a trip like this? As Drew points out, “A trip to Africa would normally be 80,000 miles in Economy, but by making it a stopover on the way to Japan the price is 70,000 miles. Save miles, see more.”

Incidentally, for those of you who have suddenly found new uses for your Avios, there’s a good TIF post about how to save your Avios by breaking up the trip.

ANOTHER WAY TO MAKE MONEY FROM BANKS: How about buying a cheap bank stock? Oddball Stocks reports on M&F bank, currently valued at 30% of book value.

MARATHON MAN SPEAKS: Food for thought from Marathon Man:

We all want to share ideas and help our fellow MSers, and we all have our own reasons for that. I say, go ahead, share and show… but let’s not be specific about things. If we say a certain card exists that says “debit” on it, we need not tell every little step on how to use it. By now most are in tune with this and those who are not should step up (like we had to) and test things, ask questions or go out and learn too. No room for lazy people. As well, if we discover a certain store or chain starts allowing something, let’s not list the darn details so prevalently! Let’s not put the Google Map address on there either. Let’s not even talk about the store itself, just that a certain type of thing can happen at certain types of places. Again, people can go out and test depending on where they live. The thinking here is that if we push push push and constantly tout all these ways to get something out of these retailers, they may see it as a scam even when it’s not, and the overzealous department heads who are smart enough to use Google and find our writings (and they do in fact show up so let’s not kid ourselves!) will change the rules and gone will be the next best MS thing.

We have to be good stewards or custodians of MS and try to do whatever we can to prolong deals, not let them die quickly because we think a new one will come along soon. We must not think that something new will replace something good. When Coins died, it took a long time for the next thing to happen and many readers may not have been around in those days or in the much darker times of the past to understand this, but it happened then and it can happen again.

CHASE’S MILITARY-SPECIFIC CREDIT CARDS: Just when I thought I was familiar with all of Chase’s credit cards, I learn something new. Military Finance has a rundown on Chase’s military credit card family. I have no idea what an MWR is, but you can get 2% there.

Are Financial Services and Telecom merging? And British Airways 100K is back!

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Some of you may be familiar with the AccountNow prepaid card, and some of you may even have obtained one at some point for the sake of earning points and miles. In light of the recent announcement that T-Mobile is offering a prepaid card, this news from AccountNow is especially interesting:

Jim Jones, CEO of privately held AccountNow, Inc., one of the nation’s largest prepaid card companies, today announced the acquisition of www.prepaidwireless.comfrom Generis Group and www.babblebug.com from Fuze Online, Inc., providers of wireless telecom products and services, primarily top-ups for prepaid phones.

So in the last three weeks we’ve had a telecom move into prepaid and a prepaid provider move into telecom. Which seems odd at first, but when you think about it, the core competencies are pretty similar: both industries revolve around getting people to put money into your product every month, often in the form of plastic cards purchased at a third-party provider. And in both industries you need a good-sized customer service operation to deal with irate customers calling to complain when things get screwed up, which they inevitably will in either industry.

This isn’t the first time one industry has dabbled in the other. My first job out of college was with AT&T Universal Card, which is now a mostly forgotten product at Citi. It is hard to imagine now, but once upon a time AT&T was one of the ten biggest credit card issuers in the country.

BA 100K IS BACK AGAIN: Here’s the link. Do any of you reading this not know why Avios are so great for short-haul flights? And why they’ll get even better on March 31?

GREEDY BLOGGERS RUIN EVERYTHING, PART CLXXVII: Apparently it’s not only people in the points-n-miles community who fuss about bloggers (or Flyertalk posters, or whoever) ruining everything. Check out Nate Tobik’s post, “The fallacy of exposing ideas” over on Oddball Stocks:

If it hasn’t happened to you yet it’s just a matter of time.  Right now you read my blog and love to see some of the strange stocks I profile.  That is until I profile something you like, and something you “found”.  Then my site goes from an enjoyable read to an unmentionable.  Everything is great except for that one post that you wish I’d rescind.

This shouldn’t be a surprise to anyone, but I don’t believe that keeping ideas secret, or not sharing ideas is the best course of action.  By writing this blog I’ve established for myself that I find value in giving ideas away for free, and I don’t believe talking about investments or potential investments is bad.

The fallacy of exposing ideas is the name I give to the idea that great investment ideas should never be shared, especially shared publicly.  In this view a great investment idea should be hoarded and kept to the person who found it.  I believe this desire derives from the fact that investors fear that once an idea is shared it will suddenly appreciate in price and they’ll never be able to purchase another share.

There are no hidden investments.  As Proverbs states “There is nothing new under the sun”, or the more modern expression “what was old is new again.”  Every investment is known by someone, if a company has shares it also has shareholders.  Sometimes the group of people is small who know about an investment, and other times the group is large.  Sometimes what is a hidden investment to us is really well known to a variety of people, it’s just not known by us yet.

If discussing and exposing ideas were such a bad thing we wouldn’t be happy to tell friends about value investing.  Why not hoard the knowledge in Security Analysis to ourselves?  Maybe Seth Klarman tried to put the cat back in the bag when he took his book Margin of Safety off the market.  The problem is if an idea is compelling we can’t help but share it with others.

If you’re intrigued, read the whole thing here.

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Saverocity is Journalistic in Nature, please obtain Professional Representation prior to attempting anything discussed herein. Opinions expressed here are author's alone, not those of any bank, credit card issuer, airlines or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.