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I want to invest my bonus into an index fund with Vanguard as I already have a Roth/401k with Fidelity. I want to balance my investments between different companies in case any of them fail. Anyways, why is a megaback door superior to putting my money into a separate index fund. I've already maxxed Roth/401k/HSA for the year. I'm afraid of putting all my money with one company. #personalfinance #investments Please help thanks.
It makes me cringe how it’s called a “mega back door“ like it is some secret hedge fund private investment vehicle. The reality is the hedgies are fucking both vehicles over. Whoever named this technique i imagine is an elementary school math teacher.
🤦♂️🤦♂️🤦♂️🤣🤣🤣 You can buy and sell whatever investments you want in your IRA. What are you even talking about?
That’s not the right question. Roth refers to a tax deferral structure, index fund refers to an unmanaged mutual fund. You can own an index fund inside a Roth. Do you mean to ask should I invest in a roth, and defer taxes, or buy a diversified index fund in an after tax account?
Yes, I am sorry. I did not word correctly. That is what i'm asking. Which is better? Diversified index fund after tax?
Generic advice is to max out any account that offers tax deferral /avoidance benefits before investing in after tax accounts. But tax advantaged accounts have withdrawal rules, after tax accounts do not. It depends on when you “need” that money. If it is retirement money, fund the Roth first. If it is emergency fund/down payment/ kids college/new car money, put it in an after tax account.
Is loading up your Roth so much really worth it if you plan to retire in your 30s or 40s?
My accountant says that Roth is the single greatest tax break you can ever get. I max out the mega back door every year. And then have a regular brokerage for everything else. You expect to live to 59.5, right? Also you can pull the principal at any time if u need it early.
Could you borrow from bank with your Roth account as collateral though? I don’t like 401k/Roth because with a simple etf in my own account I can just borrow with it to spend money. No taxes if you don’t sell anyways.
You are not taxed on any earnings gains in a Roth. Should be thinking long term not short term. If you make 10% per annum investment returns in a Roth - those gains are all never taxable even when you sell 50 years down the road
I know, but you can’t sell profit portion without penalty before retirement age. Whereas if I’m borrow against my etf, I’m not paying tax anyways. I’m never going to sell my etf till I die so I’m never paying tax on it. This is the strategy: https://www.wsj.com/articles/buy-borrow-die-how-rich-americans-live-off-their-paper-wealth-11625909583
Mega backdoor Roth determines how your money will be taxed, not where you invest your money. Your Roth 401k provider should allow you to invest in index funds. The difference is you cannot withdraw the money until age 65 except in certain emergency situations. edit: Apparently you can withdraw the principal with fewer restrictions. But then you can’t put the principal back in so this is not recommended.
You can withdraw principal anytime without penalty tho
I heard for accounts over 5 years old, you can withdraw the principal anytime.