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Asset Reallocation

If the tax-free portion of your retirement income is nowhere close to 100% even after allocating all of your future savings to Post-Tax, it is likely due to the fact that your current asset allocation, which is a result of your past savings pattern, is very sub-optimal to begin with. However, the good news is that several methods exist to right-size a bloated Pre-Tax 401k or traditional IRA account.

  • Did You Know?

Most mid-career folks (age 35-45) should limit their Pre-Tax asset level to low-200s and not exceed half a million mark by retirement in order to achieve a ~0% tax rate at retirement. Excess savings should go into Post-Tax retirement accounts until they are maxed out.

  • Did You Know?

Most mid-career folks (age 35-45) should limit their Pre-Tax asset level to low-200s and not exceed half a million mark by retirement in order to achieve a ~0% tax rate at retirement. Excess savings should go into Post-Tax retirement accounts until they are maxed out.

  • You

Roth Conversion: Follow the above guideline when considering Roth Conversion and estimate the excess Pre-Tax asset that needs to be converted to Roth. Pre-Tax assets that you are able to convert include your previous employer’s 401k and Traditional IRA accounts.

  • You

Roth Conversion: Follow the PFI guideline when considering Roth Conversion and estimate the excess Pre-Tax asset that needs to be converted to Roth. Pre-Tax assets that you are able to convert include your previous employer’s 401k and Traditional IRA accounts.

While most high-earners know to maximize their 401k contributions, few understand how After-Tax 401k works. Not all companies offer this program, but if they do, then it can be used to move more of your Taxable savings to a retirement account and to later be converted to Post-Tax using Roth Conversion.

  • Did You Know?

Use After-Tax 401k to shelter even more savings from taxes by immediately rolling over your contribution to a Roth IRA. Year 2020 contribution limit is $57K, which includes regular 401k contribution and employer match.

  • Did You Know?

Use After-Tax 401k to shelter even more savings from taxes by immediately rolling over your contribution to a Roth IRA. Year 2020 contribution limit is $57K, which includes regular 401k contribution and employer match, but excludes catch-up.

  • You

After-Tax 401k: If you have the capacity to save beyond the regular 401k contribution limit of ~$20K/year, then contribute to an After-Tax 401k and perform an “in-service” rollover to an external Roth IRA.

  • You

After-Tax 401k: If you have the capacity to save beyond the regular 401k contribution limit of ~$20K/year, then contribute to an After-Tax 401k and perform an “in-service” rollover to an external Roth IRA.

  • Did You Know?

Cumulative contribution to popular retirement accounts such as 401k and IRAs maxes out at ~$1M over the course of one's working life.

  • Did You Know?

Cumulative contribution to popular retirement accounts such as 401k and IRAs maxes out at ~$1M over the course of one's working life.

  • Self Check

1

Rerun your scenario in the Tax Free Retirement Calculator assuming that the assets have been reallocated. Observe the increase in the tax-free portion of your retirement income.

2

Estimate how much of your Pre-Tax asset needs to be converted to Roth.

3

What is your After-Tax 401k contribution going to be based on your savings rate?

  • Self Check

1

Rerun your scenario in the Tax Free Retirement Calculator assuming that the assets have been reallocated. Observe the increase in the tax free portion of your retirement income.

2

Estimate how much of your Pre-Tax asset needs to be converted to Roth.

3

What is your After-Tax 401k contribution going to be?

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