Antonia, 27, wants to retire in 15 years. She’s trying to figure out whether to contribute to pre-tax or after-tax retirement accounts.
Most financial advice for 20-somethings that she’s encountered says to contribute to after-tax (Roth) retirement accounts. These articles assume that a 27-year-old will continue earning money for the next 30+ years, presumably escalating into higher tax brackets along the way.
By paying taxes upfront, these articles say, you’ll enjoy 30+ years of compounding gains, which you’ll be able to withdraw tax-exempt.
But what if, like Antonia, you’re only 15 years from retirement? Should you stick with Roth tax treatment? Or is there wisdom in making retirement contributions with pre-tax money?
Marisa is young, high-income, and highly risk-tolerant. She’d like to know: what asset allocation would I suggest for a young, risk-tolerant person? And is rebalancing her portfolio necessary, or just a distraction?
Dylan owns his home outright. When he sells it, he’ll collect about $100,000 after fees. He also has an additional $100,000 saved in cash.
He’d like to buy a home free-and-clear. What’s the best way to approach this? Should he take out a home equity line of credit? A bridge loan? Something else?
Pal lives in the San Francisco Bay Area. He recently bought his first rental property, and he’s interested in building passive income and reach financial independence.
He’s curious about credit card piggybacking, a side hustle by which a person with a high credit score adds another person with a low credit score as an authorized user to their card.
It seems like a legitimate way to earn extra money. Why aren’t more people talking about this? Is there a problem he’s overlooking?
Anonymous, 24, says she knows next-to-nothing about investing. She has $6,500 in her Roth IRA, invested in a Washington Mutual Class A mutual fund, which is an actively-managed mutual fund with a front load.
Should she keep her money there? Or should she move it?
Her second question is about her 401k. She contributes 5 percent of her paycheck into a Roth 401k account, from which she invests in a Target Date retirement fund. Her employer doesn’t match any contributions.
Her total contributions to both accounts (her Roth 401k and Roth IRA) equal $5,500 per year.
Should she stop contributing to her Roth 401k, so that she can focus her contributions on her Roth IRA?
Jeff and his wife are both 64. When he reads about retirement, the information is ambiguous about Social Security.
Let’s say that he has $1 million saved towards retirement, which generates $40,000 annually at the 4 percent rule of thumb. Let’s also say that he is eligible for Social Security income of $40,000 per year. Doesn’t this mean he could retire on $80,000 per year? If so, then why do “4 percent rule” projections only talk about the portfolio portion?
Former financial advisor Joe Saul-Sehy and I discuss these questions on today’s episode. Enjoy!
Resources Mentioned:
- Morningstar.com
- 7 Habits of Highly Effective People, by Stephen Covey
- Darrow Kirkpatrick’s review of online calculators


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Amy Cutler
This episode had me yelling “Noooo” at the guest’s advice, dismissing the value of after tax 401k contributions. Especially when after tax 401k contributions offer an incredible opportunity to super charge your Roth IRA. Assuming the 27yr old caller maxes out all her tax advantaged options and has an employer that offers in service distributions, she could then focus her efforts on maxing out her after tax 401k contributions. My employer caps after tax contributions at $18,500 but she could contribute upwards of $36,500 (respective of the 2018 $55k total contribution limit, assuming max pre-tax contributions are made, and no employer contributions). By putting those after tax 401k funds in a Money Market, to minimize taxable earnings, the caller could then have after tax 401k contributions distributed to her Roth IRA, while the taxable interest is directed to her Traditional IRA. Consistently making Mega Backdoor Roth contributions would have an enormous impact on a young person pursing FIRE! I was so very sad at the opportunity lost to share this incredible bit of FIRE wisdom with a young pursuant.
Noah
I came here to say this, except you would still want your after-tax contributions in index funds. You only get taxed on money you make, so why intentionally not make money in the meantime?
Ray
Joe was way off on this episode! Not only did he forget about the mega backdoor roth as Amy pointed out, be he’s wrong about the expense ratio question as well.
The difference of a fund with a 0.58% fee and one of 0.04% is 24% after forty years! Assuming you’ll retire on something like a million or two, why would you donate this huge pile of tax free money to an active manager?
Jay Savan, ChFC CFP
I’m catching up on my podcasts, just heard this episode and came here to post the same comments as the astute folks did before. Joe completely overlooked the mega Backdoor Roth opportunity presented by post-tax 401(k) contributions. I’m disappointed in him, but gratified others caught the same issue!
Alex Guerrero
The guest is still trying to sell high fees mutal funds. So disgusting. Give me the difference between .5 and .03 from your portfolio if it doesn’t make a difference.