I have heard of doing this also. What is the benefit of doing this versus funding my wife and a backdoor Roth IRA and kids 529? Or are you suggesting it as another option?One option is to roll that money into a Fidelity personal annuity, let it earn back up to your basis, then pull it out.So after a lot of thought I decided to cut my losses and cancel a whole life policy I bought 10.5 years ago. I know I am cancelling it at a loss but feel the benefit of cutting the premiums and the potential to salvage the loss faster outweighs keeping the policy just to break even.
One of my thoughts is to use the excess cash to do a mega backdoor Roth IRA. I have been reading about it and can’t seem to grasp the mechanics of it. I checked my plan and they allow both after tax contributions and in plan conversions. What I don’t know yet is if they allow in plan distributions to convert to Roth IRA.
I would like to hear from anybody with experience with the mega backdoor roth. The questions I have are:
1. Can I make a lump sum after tax contribution from my savings account or does it have to be a payroll deduction in order to go into a workplace account?
2. Can I do the conversion immediately before there are earnings?
3. Is the conversion taxable if there are pretax funds in the 401k (a conversion from a traditional to Roth IRA is taxed according to the prorata rule, is this the same for an after tax 401k to Roth 401k/IRA?)
4. How is this reported on a tax return?
5. How is this best done avoiding taxes?
6. Is this a good solution for investing the cash values I receive surrendering the policy or would it be better and easier to fund my kids 529 instead?
I know a lot of questions but any insight appreciated.
Statistics: Posted by Osampat — Wed Apr 03, 2024 4:31 am