After reading a few posts on 401ks, I thought I’d share how to potentially contribute a lot more money into tax sheltered accounts. I went through this last year for a lesser amount successfully. You have to earn at least 55K to do this for the full amount. As this post is fairly long, I will divide this up into 50K and 5K components in 2 posts below.
This strategy will allow for up to 55K minus(401k contributions + employer match) in a Roth IRA in 1 year. It is only possible at employers whose 401k plan is structured the right away (discussed in below post). You may have to talk to your benefits people to find out if your 401k plan is structured right.
Why put every extra amount you can spare into a Roth IRA rather than a taxable account?
If you have had a Roth IRA for at least 5 years (doesn’t have to be with the same broker), you can withdraw your contributions, rollovers and conversions without any penalty or taxes and without having to use 72t. There is a priority order of contributions vs rollovers and conversions, but if you have had a Roth IRA for 5 years this doesn’t really affect you. Unless you need quick access to contributions AND gains, putting money in a ROTH IRA should almost always be better than putting it in a taxable account (so your gains are untaxed and you can access your contributions at any time without penalty)
Note: I am not a tax adviser and take no responsibility if you screw this up and owe taxes.