What is After Tax 401K? How is it different from Roth 401K? What is Mega backdoor Roth? How do we choose the funds for our 401K? Explained in Tamil with english subtitles.
00:00 Intro
00:30 After Tax 401K Vs Roth 401K
01:23 After Tax 401K Vs Brokerage
02:51 Mega Backdoor Roth
04:24 Other 401K Notes
04:47 Required Minimum Distribution
05:28 401K Inheritance
06:12 401K Fund Selection
07:57 Self Directed Brokerage
References:
Related Episodes:
401K Explained:
Roth 401K Vs Pretax 401K:
IRA/Roth IRA:
Tax Saving Priorities in USA:
USA College Savings plan – 529:
USA College expenses:
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DISCLAIMER:
The content of this video is my own opinions and is for information purposes only. It is not intended as a substitute for professional financial advice. It is only intended to provide education about investments….(read more)
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After Tax 401K, Mega Backdoor Roth & Fund Selection in Tamil (US Retirement Series – 3)
retirement planning is an essential component of financial stability, and understanding the various retirement options available to us is crucial. In this article, we will delve into the concept of After Tax 401K, Mega Backdoor Roth, and Fund Selection, focusing on how these options can be utilized to maximize our savings and potential growth during retirement.
The After Tax 401K is an additional contribution option available to employees who have already reached the maximum contribution limit of their traditional 401K. It allows individuals to contribute additional funds to their retirement account on an after-tax basis, meaning the contributions are made with money that has already been taxed.
While contributions to the After Tax 401K are made on an after-tax basis, the growth and earnings on these contributions are tax-deferred until withdrawal. This means that any investment gains and returns made within the account are not taxed until they are withdrawn during retirement. It provides an opportunity for individuals to accumulate additional tax-deferred savings for their retirement.
One of the main advantages of the After Tax 401K is its potential for conversion into a Roth IRA through a process called Mega Backdoor Roth. A Backdoor Roth IRA is a strategy used by high-income earners to contribute to a Roth IRA when their income exceeds the limits for direct contributions. The Mega Backdoor Roth takes this strategy one step further.
To perform a Mega Backdoor Roth conversion, individuals need to transfer the after-tax contributions made in their After Tax 401K to a Roth IRA. This conversion is possible because the After Tax 401K allows for in-service distributions, meaning individuals can move funds out of the retirement account while still employed. By converting the after-tax contributions to a Roth IRA, individuals unlock the potential for tax-free growth and tax-free withdrawals during retirement.
Fund selection is another important aspect to consider when planning for retirement. Different retirement accounts offer various investment options, including mutual funds, index funds, and target-date funds. It is crucial to understand each fund’s investment strategy, historical performance, and associated fees before making a decision.
Mutual funds are actively managed funds that aim to outperform the market by carefully selecting and managing a portfolio of stocks and bonds. Index funds, on the other hand, aim to replicate the performance of a specific market index, such as the S&P 500. These funds typically have lower fees and are passively managed, making them an attractive option for long-term investors.
Target-date funds are a type of mutual fund that automatically adjusts its asset allocation based on the investor’s target retirement date. As the investor approaches retirement, the fund gradually shifts towards more conservative investments, reducing the risk as the time horizon shortens.
When selecting funds for your retirement account, it is essential to understand your risk tolerance, investment goals, and time horizon. Diversification is also a crucial aspect to consider, as it allows for spreading investments across different asset classes to reduce risk.
In conclusion, the After Tax 401K, Mega Backdoor Roth, and fund selection are important considerations when planning for retirement. The After Tax 401K allows for additional after-tax contributions, while the Mega Backdoor Roth provides a strategy to convert these contributions into a Roth IRA. Proper fund selection ensures that investments align with your financial goals and risk tolerance. By understanding these options and making informed decisions, individuals can effectively maximize their retirement savings and potential growth.
Thank you for this series. Does the contribution to after tax open only after we reach the 401k maximum? For example, I would like to invest my bonus credited in January directly to the after tax- Roth route and later fulfill the pretax 401k max contribution by December. This would save me a few extra tax dollars.
Hello Mr Vijay, First of all thank you so much all the content that you have been releasing in this channel. I have immensely benefited from the knowledge that you share. Quick question on whether to invest in a ETF or Mutual fund. For VG Total Stock Market Index, which is a better choice – VTSAX or VTI? I am leaning towards VTSAX as it will help me being a disciplined and forced investor with automatic monthly investment. At the same time I see that there is a steady move and growth of investing in to ETFs. Am I going to loose out on anything if I don't following this band wagon.
Thanking you everyday for your life worthy advice on managing finance, investments and retirement, please share your insights on how/when to rebalance our portfolios and strategies that you know, so far i have never done rebalancing as i lack clarity on doing it, Keep doing this wonderful service to entire humanity, Keep Rocking VIJAY
Sir indiala lower middle classkku insurance and pension plan pathi sollunga sir.
401 k video about post tax was informative. Would you share some tips on vesting RSU’s and when would be good to vest
Is nifty bees better than nifty index mutual fund
Sir.. I use to watch all the financial information video. Sir i want to ask your advice and as it is very important for my daughter's future. So, kindly give best idea where should i need to invest money for 25 years that too in weekly sip. I want to invest Rs.1250 per week sir.
What is the best investment or saving for my kid’s college education in USA.My kid will go to college in 10 years
Hi sir how to buy us market Mutual Fund
Sir can you please upload the video on explanation of Asset backed securities and mortgage backed securities….
Sir very informative video. Didn’t know there is a after tax 401k.. eagerly looking forward to the next episode on IRA …
Thanks for this video.
Isn't megabackdoor the conversion from After tax 401k to Roth IRA?
Hello Vijay Sir … thank you for this video. My employer does not offer 401k. Can I invest in one of these?
Hello sir, i used to watch all the financial information video.. I m hugh fan of u. Sir i want to know what are the schemes are available India which has compounding interest ?
Pls do video for sovereign gold bond with details
Hi Vijay, can you explain how we can take out 401k after coming back to India? What are the options we have if I am still with the same company and what are the tax implications
How to decide where to invest first – between Mega backdoor Roth and 529? Is it right to say that we can withdraw contribution to Megabackdoor Roth without any penalty/taxes and use it for kids' education expenses? If yes, I think Megabackdoor Roth offers more flexibility in terms of how we use our money than 529, right?
When doing the transfer from after tax 401k to roth 401k, understand need to pay taxes on any gains (at marginal rates) but if there are losses can they be deducted or offset against other capital gains
Can after tax 401k be transfered to Roth IRA?.
Thank you! Sir.. I have few questions. will this After TAX 401K ok for Indians who is planning to settle in India after retirement? what all are the tax implications. Kids may settle down in US. kids inheritance is possible FOR AFTER tax 401K.. or Creating a family trust or so for 401K plan?
Thanks! Vijay. As usual wonderful information/content.
It is possible single earning paychecks can have reduced take home pay because of after tax contribution. But if you can sustain by selling your investments that is better.
Hai Mr.Vijay sir, how to invest in a US ETF, Index fund and Stocks from India? Please suggest the best platform and App.
Thank you,
Nice video.. initial 3 years i was doing all the mistakes you have mentioned . Anyway better late than never learning. Right now I am doing rollover so waiting for next episode.. thanks for your effort.
Great ji..
pls give some information about bond index funds like VTSAX, VTI. Thanks
Good Content
Hi sir, can you give a detailed video on networth calculation ? Also if you have any simple sheets to estimate it? That will be great
Expense ratio pathi clear video venun
I have a doubt… I can invest monthly 500.. Should I go for Indian index funds or US stocks…long term only
Index funds for long term 50 years india la sollunga
Happy to see the 1st view