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Comment by missedthecue | Hacker News Reader

I'm irritated that the Roth IRA limit is staying at $6000! That doesn't make immediate sense to me.

At my income, hitting the Roth IRA maximum is much more attainable than the 401(k) maximum.

If your employer offers a match in their 401(k) plan, it's generally better to contribute as much as possible, at least until you maximize the match.

Keep in mind that the limits can only increase by $500 increments. $6500 / $6000 ~= 1.083, which is still a larger fraction than $20500 / $19500 ~= 1.051.

Well that would explain it. Is there any reason they can only do it in $500 increments? That's a weirdly arbitrary rule when money is in fact deliberately designed to be divisible.

The rounding is baked into the law.

> I.R.C. § 219(b)(5)(C)(ii) Rounding Rules — If any amount after adjustment under clause (i) is not a multiple of $500, such amount shall be rounded to the next lower multiple of $500.

https://irc.bloombergtax.com/public/uscode/doc/irc/section_2...

There is absolutely no reason the law was written to limit IRA to $6k while 401k is $20.5k other than to give larger employers or other employers who can afford administering 401k an advantage over smaller employers who cannot.

A married couple with both working at companies offering 401k gets to save $40k+ pre tax, but a married couple with one spouse working at a local small shop not offering 401k gets to save half as much.

Why doesn't the shop have a 401k?

Doesn't the owner want to save for retirement?

They cannot afford it. 401K have administration costs and you have to make it lucrative enough such that both employees participate to pass non discrimination testing, and lots of small businesses are just barely eking out an existence with owners taking little profit other than sweat equity.

Been a while since I looked at safe harbor 401ks, but I think you just have to offer it, not force employees to join.

And admin costs are going down; I think something like $50 +$8/per/mo on Guideline. Not nothing obviously, but can be recouped pretty quickly if you're maxing out even just employee contribution.

Look up a "Backdoor Roth". It is specifically designed for people in this circumstance.

Essentially you do a non-deductible traditional IRA contribution and then immediately convert it to a Roth IRA. There are rules regarding this so important to follow them but it's actually fairly easy to do.

This is potentially being eliminated (under some circumstances) by the current reconciliation bill.

Can't let the middle-class get too uppity with things like financial security, now can we?

Puh-lease. Megabackdoor Roth utilizers are $200k+/yr earners.

The legislation eliminates all back-door Roth contributions, not just the mega ones.

You can contribute to a rIRA with up to $140k/yr in income when filing single, more when filing married jointly. There are also no income limits if you do not have an employee sponsored retirement plan. So yea, still doesn't hurt the middle class.

> So yea, still doesn't hurt the middle class.

$140k in any number of US cities is solidly middle class. That's also the point where you can't contribute at all.

The contribution scales to zero linearly with AGI from 125k to 140k. And we're talking about a $6,000 contribution here, which is nothing compared to the $19,500 you can put into an employer plan.

You can put $29K into a backdoor employer plan, plus the $19K for the 401k, plus $9K employer match.

And that's per wage earner, so double if you are dual income. (A huge implied tax on active parenthood)

But anyway, if you have that much to save, after 401k and 529, you above almost all the middle class, whose total household income is below your savings.

I utilized MBR when I was closer $100k/yr. Lived the post-college lifestyle, minimal expenses.

Uhhh yeah, like I said, middle-class earners.

https://youtu.be/93zDAurnw4k

Is it? I had read that it was dropped or being delayed a decade.

My reading of the original comment is that their income is actually too low; that is, they have access to a 401(k) plan, but wouldn't be able to save $20,500 after paying for all their expenses.

This may go away soon with current legislative conversations.

You could use a Roth 401k to supplement that. And then rollover that into a Roth IRA if/when you change jobs.

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