All Forum Posts by: Matthew Harrigan

@Matthew Harrigan You've gotten some great advice on here so far from @Max Gallagher and @Daniel Murphy.  Simplicity can be the best thing sometimes, and they mentioned liquidity; that's going to be one of if not the most important factors when you're weighing Roth vs. brokerage accounts. 

With an MBDR, you could theoretically save 70k per year (for 2025) in Roth dollars, growing tax-free.  When you turn 50, you can do even more (77,500 for 2025). 

So, if you like the idea of the tax-free bucket, you can wait until 59.5 to take "normal" withdrawals, but here are a few creative ways to use the tax-free money early without penalty:

You can do MBDR in your company's 401k plan and leave after age 55 and no longer worry about the 10% penalty (Rule of 55)
Utilize 72T - Pay yourself the same amount every month until you are at least 59.5
Move the money to a self-directed IRA (SDIRA), where you can use the Roth IRA to purchase RE
10k of earnings can be pulled tax-free for first home purchase
The principal can always be withdrawn tax-free
Not really anything anyone plans for, but there are some exceptions for medical expenses as well that can be a nice plan Z if you blow through other emergency funds

I do this in my company's solo 401k because it gives me the most control over the funds, but it can easily be done in a company 401k if their plan rules support it.  I'm sure I'm missing stuff here but there's some food for thought.

This is a complicated subject, and I'm not 100% sure I'm following all of your points.  But let me say a few things from someone who has processed a lot of partial Roth conversions post retirement.  

1) When & how you contribute to Roth assets is primarily driven on your current tax state.  IE - when you're young and poor (low tax bracket), contribute as much as you can to a Roth.  When you're older and higher income (higher tax bracket) you'll want to contribute to pre-tax savings (generally).  This is to get your tax deduction at a higher tax rate.  
Presumably, if you retire before you take Social Security, you will have a handful of low income years when you could then do Partial Roth conversions and convert those assets you presumably saved at a 22% or higher tax rate, and convert them in a lower income situation (12% or less).  You've essentially "saved" that tax difference.  
To do this, you'll need other sources of income that are tax "preferred". This is where the taxable account comes in.  

2) LONG TERM - If you have kids. And presumably if you're on Bigger Pockets and talking financial stuff, you'll hopefully be in a position to pass wealth onto your kids.  If this is the case, you want as much money as possible in taxable and Roth assets so that you don't pass assets on that create tax burdens for your kids.  

All of this points to what I said earlier, Roth assets are good long term.  

To hit on a few points from your post - You can withdraw contributions from your Roth, and yes you can withdraw gains after 5 years. But you still need to be 59.5 in order to forgo the 10% early withdrawal penalty, even from a Roth.  
Inherited IRA's are still taxable to you, unless they are an inherited Roth IRA.

I'm not a fan of mega back door roth contributions, unless potentially if you're in the 22% tax bracket or lower. But... If you're in a position to contribute the 401k max, plus HSA max, plus even more I would assume you're in the 22% tax bracket or higher.  

I could spew more details, but it would help to know more about your age. Your income. Your goals and what you're trying to accomplish.