Comment by hyperrail | Hacker News Reader

Comment by hyperrail | Hacker News Reader

> You will pay for your day-to-day expenses almost entirely through bonuses and stock, redirecting much of your base salary to retirement.

I think that will not be easy. Let's say you get hired as a "Senior Software Development Engineer" at Microsoft (internal folks will know this is Level 63 or 64). Your signing bonus will be approximately $20,000 to $30,000, and your stock award will be highly variable but generally has a 1-year cliff for vesting, so it can be disregarded your first year.* 20k-30k per year gives you only a minimal subsistence in the Seattle region or SF Bay Area, especially with the high cost of housing in both.

* https://www.levels.fyi/salary/Microsoft/SE/Senior-SDE/ gives a good idea of how much Microsoft pays a Level 63. Regarding stock awards, Microsoft does not give stock options or RSUs. Instead we have a RSU-like system for equity awards where the company gives you unrestricted stock on a schedule. It is RSU-like in that you can't sell the stock until it "vests", but unlike an RSU in that you don't hold the stock at all until it "vests", only a future right to get it.

Perhaps what op has in mind is that some of these big companies let you contribute post-tax money to your 401K (that you can then roll over into a roth IRA even if you are above the income limits to contribute directly to a roth) there's a like $56K limit on what you put in your 401K. (this is the total of your pre-tax contributions + your employer matching + your post tax contributions)

Sure, you can just stuff money in your brokerage account and save money post-tax, but then you go without the bankruptcy or tax protections that the stuff that goes through your 401K gets, so there's a lot of benefit to maxing your 401K in these situations. if you can swing it, it's worth scrimping, because as far as I can tell, I can only get money into my 401K that is processed through payroll (bonus and base, but not stock) and jobs that have these post-tax 401Ks are rare, in my experience, so when you get the chance, it's worth some pain to take advantage of it.

I remember my first year at a company with retirement plans like this, I took my signing bonus in cash ('cause I didn't get my 401K sorted by then) but my 'net pay' was 0 for many months afterward as I worked to max out the 401K before year-end

this is the so-called back door 401(k). it’s a mistake to contribute to that.

eh, it conveys all the advantages of a roth IRA, plus (I believe possibly) stronger bankruptcy protections, (because it's rolled over from a 401K) - so assuming you can contribute to it (which is to say, you have money after maxing your pre-tax 401K) I think that it's a thing you should consider.

Note, I think that maxing out your pre-tax retirement savings first is a good idea because it manages risk well; when you go to withdraw, you pay taxes based on how much you withdraw; If you are rich when you retire, you'll pay a lot of taxes, but that isn't exactly a disaster. If you don't have enough to withdraw a lot, you won't pay a lot of taxes on the other end as-is, and you will have put more in on the other side, so you are net better off. So overall, I agree that pre-tax contributions should be maxed out first, but after that? if you have the opportunity to add another 26K/yr to a roth IRA, and you are making the kind of money where you can swing it, it's probably a good idea.

(Note, I'm no expert. I'd be interested to hear why you think that saving in post-tax accounts is better than saving in roth IRA accounts, if that's what you are suggesting.)

> eh, it conveys all the advantages of a roth IRA

it does not.

https://www.physicianonfire.com/value-of-backdoor-roth/

> believe possibly) stronger bankruptcy protections

true, but at the significant cost of losing the ability to do tax loss harvesting on the (presumably) large amount you are investing through the back door. plus the withdrawals are taxed (regular Roth are bit but backdoor is).

so I think what I'm describing here is different from the link - my employer deducts post-tax money from my paycheck into the 401k, then rolls that over into something that will roll over into a roth IRA when I leave the company. As far as I can tell, that's what OP was speaking of (See the "Daily roth in-plan conversion" portion of the paycheck deduction screenshot.)

The important part is that if you really set your contributions to 65% then you will max out your annual retirement contribution limits early on (front loading). So the rest of the year you will receive your full paycheck (- ESPP, which you'll also get back every quarter).

So the situation is not as dire as it appears.

I see. It is not clear from reading those top bullet points alone that you are not suggesting I follow the "save as much as possible" strategy the whole calendar year, but only until I reach the 401(k) limit. There is also a bullet point "only invest in tax-sheltered accounts", but I could also save money in a bank savings account, which I would consider a taxable non-"investment" account.

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