Getting Rich as a Big Law Lawyer Forum

[jbagelboy]

This thread started bad and got worse, with some of the last few posts laughably flame

Also certain posters clearly have no idea how expensive it actually is to live in NYC, and the virtue signaling about ramen noodles and walks in the park isn’t helping

[showusyourtorts]

You've also got the regular backdoor Roth IRA, where you can sock away another $6k a year ($12k if you've got an employed spouse) in a tax-advantaged account.

Uhhh. The numbers you're quoting make me think you might want to spend some more time reading up on MBDR. The 2021 limit was $38.5k.

Backdoor != megabackdoor

Backdoor is when you contribute to a Traditional IRA and then immediately (so as to avoid realizing gains) recharacterize it as Roth. Essentially you sidestep the income caps for Roth IRA contributions. Limit $6k/person.

Megabackdoor is when you make post-tax contributions to a 401(k) plan and then convert to Roth 401(k).

Yep. So if your firm allows it, you can contribute to your trad 401(k) ($20.5k), MBDR 401(k) ($40.5k), HSA ($3.6k) and BDR IRA ($6k). That's $70.6k in tax-advantaged retirement savings a year - pretty amazing IMO. Most juniors probably won't max out that space, but it's still good to know what all the tools are.

Also should note that the MBDR limit is per employer. If you were to lateral at some point next year, you could contribute 40.5k to first employer's MBDR and then 61k to next employer's MBDR. Assuming ofc that each employer's 401k plan allows MBDR contribution/conversion and Congress doesn't nix the MBDR.

I don't think that the MBDR limit is per employer -- I think it's just like the 401(k) in that sense, where the annual $19.5k limit (i.e., the new $20.5k limit) applies without regard to how many times you switch jobs. Could be wrong, though.

[almondbutter]

You've also got the regular backdoor Roth IRA, where you can sock away another $6k a year ($12k if you've got an employed spouse) in a tax-advantaged account.

Uhhh. The numbers you're quoting make me think you might want to spend some more time reading up on MBDR. The 2021 limit was $38.5k.

Backdoor != megabackdoor

Backdoor is when you contribute to a Traditional IRA and then immediately (so as to avoid realizing gains) recharacterize it as Roth. Essentially you sidestep the income caps for Roth IRA contributions. Limit $6k/person.

Megabackdoor is when you make post-tax contributions to a 401(k) plan and then convert to Roth 401(k).

Yep. So if your firm allows it, you can contribute to your trad 401(k) ($20.5k), MBDR 401(k) ($40.5k), HSA ($3.6k) and BDR IRA ($6k). That's $70.6k in tax-advantaged retirement savings a year - pretty amazing IMO. Most juniors probably won't max out that space, but it's still good to know what all the tools are.

Also should note that the MBDR limit is per employer. If you were to lateral at some point next year, you could contribute 40.5k to first employer's MBDR and then 61k to next employer's MBDR. Assuming ofc that each employer's 401k plan allows MBDR contribution/conversion and Congress doesn't nix the MBDR.

I don't think that the MBDR limit is per employer -- I think it's just like the 401(k) in that sense, where the annual $19.5k limit (i.e., the new $20.5k limit) applies without regard to how many times you switch jobs. Could be wrong, though.

Yes, you are wrong.

https://www.bogleheads.org/wiki/After-t ... r-limits-5

https://www.irs.gov/retirement-plans/pl ... ion-limits

[showusyourtorts]

You've also got the regular backdoor Roth IRA, where you can sock away another $6k a year ($12k if you've got an employed spouse) in a tax-advantaged account.

Uhhh. The numbers you're quoting make me think you might want to spend some more time reading up on MBDR. The 2021 limit was $38.5k.

Backdoor != megabackdoor

Backdoor is when you contribute to a Traditional IRA and then immediately (so as to avoid realizing gains) recharacterize it as Roth. Essentially you sidestep the income caps for Roth IRA contributions. Limit $6k/person.

Megabackdoor is when you make post-tax contributions to a 401(k) plan and then convert to Roth 401(k).

Yep. So if your firm allows it, you can contribute to your trad 401(k) ($20.5k), MBDR 401(k) ($40.5k), HSA ($3.6k) and BDR IRA ($6k). That's $70.6k in tax-advantaged retirement savings a year - pretty amazing IMO. Most juniors probably won't max out that space, but it's still good to know what all the tools are.

Also should note that the MBDR limit is per employer. If you were to lateral at some point next year, you could contribute 40.5k to first employer's MBDR and then 61k to next employer's MBDR. Assuming ofc that each employer's 401k plan allows MBDR contribution/conversion and Congress doesn't nix the MBDR.

I don't think that the MBDR limit is per employer -- I think it's just like the 401(k) in that sense, where the annual $19.5k limit (i.e., the new $20.5k limit) applies without regard to how many times you switch jobs. Could be wrong, though.

Yes, you are wrong.

https://www.bogleheads.org/wiki/After-t ... r-limits-5

https://www.irs.gov/retirement-plans/pl ... ion-limits

Wow. TIL. Appreciate the links, too. That's an insane perk for lateraling senior associates with the cash flow and desire to make use of it.

[The Lsat Airbender]

Wow. TIL. Appreciate the links, too. That's an insane perk for lateraling senior associates with the cash flow and desire to make use of it.

Eh, it's not *that* insane. We're talking about tax savings of 20% (LTCG rates); in other words, putting $40k into MBDR is roughly equivalent to putting $50k into a taxable account (understates things slightly because of tax drag on dividends, which is perhaps 10bps/year, or 4% over 40 years). So, assuming you actually take full advantage, it's worth perhaps $10-12k which is merely a sweetener compared to signing bonuses nowadays.

[Anonymous User]

Wow. TIL. Appreciate the links, too. That's an insane perk for lateraling senior associates with the cash flow and desire to make use of it.

Eh, it's not *that* insane. We're talking about tax savings of 20% (LTCG rates); in other words, putting $40k into MBDR is roughly equivalent to putting $50k into a taxable account (understates things slightly because of tax drag on dividends, which is perhaps 10bps/year, or 4% over 40 years). So, assuming you actually take full advantage, it's worth perhaps $10-12k which is merely a sweetener compared to signing bonuses nowadays.

*$10-12k annually. Still not a complete game-changer and usually less important than a large signing bonus, but it does start to add up if you're going to be there a while.

Of course, the specific perk of getting to double your MBDR contributions in the year that you lateral is probably a one-off thing.

[The Lsat Airbender]

Wow. TIL. Appreciate the links, too. That's an insane perk for lateraling senior associates with the cash flow and desire to make use of it.

Eh, it's not *that* insane. We're talking about tax savings of 20% (LTCG rates); in other words, putting $40k into MBDR is roughly equivalent to putting $50k into a taxable account (understates things slightly because of tax drag on dividends, which is perhaps 10bps/year, or 4% over 40 years). So, assuming you actually take full advantage, it's worth perhaps $10-12k which is merely a sweetener compared to signing bonuses nowadays.

*$10-12k annually. Still not a complete game-changer and usually less important than a large signing bonus, but it does start to add up if you're going to be there a while.

Of course, the specific perk of getting to double your MBDR contributions in the year that you lateral is probably a one-off thing.

Yeah, meant the bolded. Over the years, having access to MBDR is a big deal. (All that said, Congress might axe it soon, so for the 2Ls reading, I'm not sure I would weight it too heavily when trying to choose where to summer).