Hacker News Reader

Comment by briHass | Hacker News Reader

One problem with the Roth IRA is the income phase out limits. If you're single, if you AGI is >117K, you can only contribute some percentage of the $5000 allowed for the Roth. If you're >132K, you can't contribute anything. For a married couple, those limits are 184K/194K. Granted, you can reduce your AGI by contributing to a 401K first, which allows you to take $18K off the top.

I know this doesn't affect many, but for the high-paid tech crowd, these limits right around the point in your career where you want to be pumping in money.

View on HN

Those are still pretty high limits, well above the median tech salary even in the Bay Area. If you're in "income phase out" territory you're probably not worried about your retirement.

The thing I don't like about Roth is that you're contributing with post-tax money during your prime working years--the time when your taxes are probably as high as they will ever be. Especially true as a tech worker where your salary plateaus in your 20s. I'd rather save pre-tax now, and then pay taxes later when I'm 60 and back in the lowest tax bracket.

My issue with the Roth is that I don't trust the rules to remain the same in the future. I pay taxes now, before the money goes in, with the promise of tax-free withdrawals. I fully expect that money to become taxable on the back-end at some future time. It might be a lower rate (like capital gains today) or be income-based, but that pot of $ will be too tempting to ignore, I fear.

So worst case scenario is that you wind up paying the taxes you'd have paid if you didn't use the Roth? Not really a reason to not use one when it's only a possibility and not a certainty.

If things get dicey enough that they start taxing Roths, you can bet that they'll tax traditional accounts enough to claw back the original tax deduction plus interest.

Adjusted gross income includes things like bonus and RSUs vested during the tax year, no? If that is the case then anyone starting straight out of college at a large tech company (Google, Facebook, Apple, etc.) will likely be above the phase out limits.

EDIT: Specify vested RSUs per reply below.

> Adjusted gross income includes things like bonus and RSUs, no?

It doesn't include RSUs while they're only in paper - they get counted when you actually sell the stock and can spend the money.

As far as I know, you're not taxed when the shares are granted, but they are taxed as income when they vest, and then later as capital gains if you sell for more than the price when they vested.

Just curious, what are the median Bay Area salaries? I'd think most married couples in bay area tech are above the contribution limit.

According to PayScale[1] and Glassdoor[2], average/median salary for software engineer in the Bay Area is around $110K. Caveat: Self-reported data and base salary only.

1: http://www.payscale.com/research/US/Job=Software_Engineer/Sa...

2: https://www.glassdoor.com/Salaries/san-francisco-software-en...

You can get around this by contributing to a traditional IRA and then converting it to a Roth. This is easy to do (until law changes) unless you have an existing traditional IRA where you can take a tax hit.

... And you can roll your trad IRA into your company 401K before doing the backdoor Roth, thus avoiding the tax hit.

No - no you can't. Someone has given you some odd and confusing advice.

I have personally done so.

https://www.nerdwallet.com/blog/investing/rollover-ira-to-40...

http://www.kiplinger.com/article/retirement/T047-C000-S004-m...

It's true that many tech workers are eventually affected by the contribution limit, but my understanding is that it's essentially always smart to contribute to tax-advantaged accounts while possible.

Reply on news.ycombinator.com