Trip7

I said small caps but did not specify domestic only. As the valuations of intl equities are more attractive than US based ones, I highly recommend diversifying into intl small caps.

And just to clarify since you are fixated on “high risk”. I recommend a value based approach ie purchasing companies that have positive cashflow with low debt, and/or purchasing companies that are trading for pennies on the dollar relative to the assets on the balance sheet.

Trip7

My asset allocation outside the 401k is mostly the same as inside the 401k, investment in 10-12 small cap stocks except with added torque of LEAPS on a small cap energy, LEAPS on China Tech and an investment in a self storage syndication.

LeineLodge

TL;DR - more Roth space + status quo pre-tax space.

Looking at this a different way. Assuming a pilot wants to save/invest all spill to keep it apples:apples

Status quo first $66k (+ any catchup) is sheltered pre-tax. Invest spill in a brokerage acct. Pay taxes/dues up front and cap gains later on earnings.

Why not instead, estimate spill cash…then frontload ROTH into the 401k in an equivalent amount? This will never be taxed again. Now spill shelters into MBCBP. Rebalance your entire pie so MBCBP holds fixed-income and ratchet up equities elsewhere

Same result but now lower RMD’s (due to more conservative pre-tax holdings) and no cap gains on earnings of ROTH $ vs status quo brokerage account.

Seems to be a way to still shelter the full 415c limit pre-tax, and get spill into a tax protected ROTH account by thinking of it in reverse.

As a bonus, instead of direct ROTH contributions this pilot makes after-tax 401a contributions and then takes an in-service withdrawal, rolling the 401a $ out to a self directed Roth IRA (ie mega backdoor Roth). He/she can now invest in anything the rest of this thread has proposed in a tax free account.

What am I missing?

bozo99

Most people who understand the math and mechanics of portfolio allocation would call 100% concentrated small caps and energy/tech options risky. (I'll leave the real estate aside because that is a whole other rabbit hole.) But... I don't think you'll be persuaded so we'll have to agree to disagree on that one.

However, you have underlined my point of high variance: your strategy is either going to win big or blow up. There won't be an in between result.

Finally, I would encourage you to educate yourself on the limitations of withdrawals from qualified plans. Your 401k is not a "lockbox." There are numerous ways to get access to qualified money if you want or need to.

Trip7

Is a pilot with little debt and a single source of income a win big or blow up strategy? If not they why are 10 cash flowing businesses a win or blow up strategy? It seems like you put all stocks, regardless of fundamentals, in the same "risk" category as gambling. Then you say real estate is another rabbit hole. Why is that? I don't blame ya. I used to think like you. If you're interested in another viewpoint, read One up on Wallstreet by Peter Lynch and The Little Book that Beat the Market by Joel Greenblatt

The 401k is a lockbox for retirement. There are limited ways to access the money at scale prior to 59.5. ROTH IRA is alittle more flexible with the laddering technique

m3113n1a1

Agreed, Roth IRA is far superior. What happens in the future when we don't have enough workers and the government raises the 401k age to something like 65? Our money is just stuck for another 6 years? What about when they raise taxes? All that supposed tax savings goed right out the window. Keeping all of your investing inside retirement accounts is a huge risk.

higney85

You are missing nothing. This is the way. Between the HSA, back door Roth IRA for you and spouse, Roth 401K to max, 401A contributions prior to the 401 limit (single call to fidelity initially to make it all Roth), the rest goes to spill into the MBCBP. That’s “retirement accounts” to the max. Of course there are brokerage (normal, taxable) available beyond those, but if purely saving for retirement, this is the way. To create a 3 bucket strategy, you can now have taxable (traditional/company contributions/MBCP), non-taxable (Roth 401K, RIRA) and HSA for medical, and brokerage assets to meet needs and tax brackets. Joy now is a lack of income restrictions.

higney85

Other side is legal issues. RIRA is open to creditors, 401K’s not so much. Fill all baskets, but also watch all potential hands. If you have kids, an umbrella policy is nice to have for a layer of protection, while under your liability. Ask about it…. In retirement it’s easy to roll and even convert (taxes may matter) into IRA (traditional and/or Roth).

crazyjaydawg

My CFP came up with a similar number, 7.5%, but that doesn’t include tax treatment in retirement (see below).

This is a huge factor in the decision for me. My 401(k) will be maxed out for a long time. While I’m trying to balance and do a best guess between Roth (personal and IPC) for tax purposes in retirement, it appears that I will be in high tax brackets from now until death. LTCG on excess invested in RE or brokerage will be at 15%, whereas potential MBCBP money will likely be 35%+. IMHO, I expect income tax rates to go up before they decide to tax gains on Roth or increase LTCG. This just works against the MBCBP.

Again for those with a shorter runway it makes more sense as they will likely be taking an income hit in retirement and therefore be in a smaller tax bracket. That’s just a function of high-income retirement being a recent problem that has already been discussed.

I think it’s very useful for those that don’t want to think about the money. I personally feel that someone with 20+ years could very easily do better. However, I understand that there are plenty of pilots that don’t want to learn, or don’t want to spend energy on doing that. That’s totally cool and the MBCBP will certainly be better than nothing.

I was thinking the same thing. This guy mentions VTI as the comparison, but there are many other indicies that have done better than the total market. That also highlights that LIRIX does worse that the total market. He did a snapshot of one year, but any other year or comparison or time range, would show much better returns outside of LIRIX or anything really that’s a 60/40 split.

I say anything with greater than a 7.5% returns (assuming 5% MBCBP returns) over 20+ years will provide more money before and after taxes, even including ALPA dues.

Final thought on the dues money:
I think ALPA National would love for us all to opt out, they want that dues money.
I think DALPA leans toward pilots staying in, mostly because more money and participants, the better terms they can negotiate with fund managers. Also they can claim a “retirement win” which was a pillar that was chopped down in C2019.
Overall though, I think the union is happy to give pilots (for now) the choice. I don’t see anything nefarious.

higney85

Being that DALPA puts in far more dues than budget, and this plan would reduce them, with other carriers now carrying their weight on dues (with new contracts) there isn’t a part of me that thinks the DALPA plan is “against” the MBCBP. It’s a new concept and works well for many other professions in a higher income bracket. Cool to be there in income space, but the MBCBP either works or doesn’t work for YOUR financial picture. If already here, you need to assess and decide. Up to you. I was for it initially against it when it got laid out, and back for it after running numbers. It’s conservative growth, plan accordingly, your own plan may vary. In or out, pick your returns and retirement tax strategy and current investment plan on spill cash.