485 | Mailbag: Spending Down to Zero, High Fee 401k, Mini Retirements | Rachael Camp

401(k) Fees

Navigating high-fee 401(k) plans requires a strategic approach to minimize costs while maximizing benefits. Rachael Camp suggests evaluating the expense ratios of investment options, aiming for fees under 0.2% whenever possible. She emphasizes the importance of comparing these fees to potential tax savings from pre-tax contributions, especially for those in high tax brackets 1. Additionally, Rachael advises advocating for lower fees by communicating with HR departments, as this can sometimes lead to positive changes in available investment options 2.

The worst thing that can happen is they respond and say, no, we can't change the 401K plan.

--- Rachael Camp

By understanding and leveraging these strategies, individuals can better navigate the complexities of high-fee 401(k) plans.

   

Roth IRA

Roth IRA strategies offer flexibility for those nearing income phase-out limits. Rachael Camp explains the backdoor Roth IRA as a viable option for high earners, allowing non-deductible IRA contributions to be converted without tax implications 3. She highlights the importance of avoiding the pro-rata rule to prevent double taxation and suggests completing conversions within the same year for simplicity 4.

If it takes an extra step now, to me, it is worth it to avoid the headache of having to take out those excess Roth contributions.

--- Rachael Camp

This approach helps individuals maintain their retirement savings strategy without the risk of penalties.