Really? First time I heard about that arrangement. But if it’s after tax, you don’t really have to go thru your employer, right?
Also, the beauty of these retirement plans, be it defined benefits aka pensions, or defined contribution aka 401k, you have virtually unlimited freedom to choose your own investment. You are not limited to stocks and mutual funds. You can buy real estate for example. A few banks offer mortgages for retirement plans. So you can lever up too… 
It’s kind of like a Roth-IRA vs IRA.
Part of me thinks that if you contribute into both, it’s like playing roulette black AND red. Guaranteed to win. And to lose.
With the IRA (or regular 401k), I bet that at retirement age my tax rate is lower than today (either because taxes in general are lower, or because I have less income)
With the Roth-IRA, I bet that at retirement age I would pay higher taxes, thus rather pay the taxes now.
That said, I do have both types of accounts.
One benefit is that they are protected in lawsuits, as far as I know,
And then there is the risk that the IRS changes their mind, breaks their promise and wants those profits earned in Roth accounts to be taxed at withdrawal time.
I prefer the pre tax IRA or 401k over Roth. My thinking is that the sophistication of tax trickery available to me increases proportionally to my net worth. So Trump is not really correct about why he’s not paying taxes. It’s not because he’s smart, it’s because he’s rich.
By not paying taxes today I can build up my net worth that much faster, which increases my odds of lowering the tax bill.
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That’s WB’s strategy.
Great point. Rich people/companies have abundant resources to employ professionals, and setup complex arranges to exploit tax loopholes. That’s the reason why I am against most of the tax increases, which in my mind end up having the greatest impact on the middle classes regardless of the intentions.
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How then would you recommend balancing the budget? Cut expenditure like defense? law & order? governance? Print money? Remove subsidies to special interest such as alternative energies, etc.
If the tax increase is to slow down the income inequality, it is not helping by imposing the tax burden disproportionally on the very class the policy tries to protect. It is totally counterproductive.
I balance my budget based on how much income I have, not how much income I would like to have. Of course there are cases when fundamental policy changes call for a tax increase, such as in the case of ACA or maybe in the future free preschool/post graduate education for all. In any other times, a steadily increasing GDP per capita every year should be enough to increase tax revenues.
one of the issues on the retirement side of things is mandatory withdrawals.
Of corse there are simple formulas provided that tell us how much to withdrawal at the age defined time.
For my husband had we took the really long range view we would have rolled most of his 401Ks into his next employers plan to avoid mandatory distributions. Instead we rolled them into IRAs thinking he would be retired when mandatory distributions became an issue.
As the younger spouse and the retired spouse it does pose some interesting issues. Retired Meaning I stopped taking new clients a few years back and gradually started referring all but the ones that are easy to work with or took a chance with me decades ago. I work less and work at fun.
As a side note. I hired my oldest as my assistant and have been bringing him along to client meetings. At age 11 he was asked what his mom did and he replied she tells people what to do. Now he has a better understanding of why I get paid to tell people what to do. 2017 is graduation.
As another side note I’m fine. I’m still dealing with crap and likely still will be for some time. My patience in tested daily. My kids lost the good in their childhood and with time I hope they regain it. It’s as if it’s all or nothing.
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Investment growth has another dimension as Time. If you are younger, less than 30 for sure or appx less than 35 years, better to choose Roth IRA or Roth 401k than traditional. Since you have 30 years, your growth may take you few millions tax free with Roth.
Late starters may go for traditional, no options left !
Based on my reading, Defined benefit is better for single owned business person earning more than 250k tax filing is better for DB. When DB is offered, the company has to offer the same for all employees uniformly. Then, individual or family own private businesses are best suitable. The DB is depended on last three years of tax filing average. With high deductions, the DB is best above 250k/per person range is suitable.
Less than this 250k range, it is better to go for 401k plans/sep plans.
Simple google search reveals all the details of DB.
There is income limit for setting up Roth IRA. If income exceeds I think 180k for jointly filing you cannot contribute any Roth IRA. Assuming you have a 401k plan with ur employer
I am my own employer. With a solo 401k I can contribute up to over 100k a year if I make enough profit with my business.
I was just explaining why folks with W2 can take advantage of after tax 401k. It bypasses your Roth IRA contribution limits. Essentially you can have upTo 35k per year in Roth thru this backdoor roth
Speaking of Leona Helmsley, I always found that case to be somewhat odd in that with her money and access to the best lawyers on the planet that they weren’t able to persuade the IRS to back off some. I suppose it was to teach her a lesson but still.
IIRC, max 401k is $59000 for ages above 50 and max is reduced to $53000 for ages below 50.
I am not 100% sure on the following statement (need to verify with IRS documents). Only 25% of the company profit can be set aside for 401k plan. In order to max single person limit $59000 (if age > 50), company needs to earn profit $59000 x 4 = $236000.
Here is the article:
Solo 401k and SEP IRA will do the trick to get to100k per year
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Thanks for sharing info.
Ultimate Authority is IRS
I have not gone through complete IRS site for all the combined plans.
If IRS allows $108000 as per their link, then it is fine.
Retirement is linked to individual SSN. IRS limit applies for single SSN.
Financial samurai is correct. But it may not be the best tax strategy. Defined benefit seems a better option, simpler and easy to understand.
Tax law is too complex and too hard to undestand. I hope they will make it simple and easy. It’s not worth the time and money to save a little bit more tax. When your tax complexity increases with just a little tax saving, all the lost brain cells and anxiety will exceed that little bit of tax saving.