After tax 401k contribution

[corn18]

I talked to Fidelity tonight about whether I can make after tax 401k contributions and then convert those to a Roth IRA (mega backdoor Roth). Turns out, I can. So here is what I am thinking for 2016 (I am doing this for the rest of 2015 as well):

$24,000 before tax contribution (will be 50 next year, ugh)
$12,000 employer match (will have to keep an eye on this so I don't exceed $53,000 total)
$17,000 after tax contribution that I can do an in service rollover to a Roth

$53,000 total (this might go up to $54,000 in 2016)

From what Fidelity told me tonight, I can convert the $17,000 each year to a Roth IRA without it being a taxable event. Add that to the $11,000 I am doing a backdoor Roth on every year, and that means I am adding $28,000 a year to my Roth IRA's. I really like this.

Anyone doing a mega backdoor Roth with after tax 401k contributions?

Thanks,

Tom

[Like2Plan]

Tom,

I have been thinking about it for DH's 401K, but haven't pursued it. DH has already maxed out his 401k contributions for the year.
I would be interested in finding out how this works. DH's 401K doesn't have much info on the web site. (It would require a phone call when he gets home.)

But, that is awesome that you can take advantage of it.

[corn18]

I have been researching it a lot more and found this to be useful:

http://news.morningstar.com/articlenet/article.aspx?id=682209

https://www.kitces.com/blog/irs-notice-2014-54-acquiesces-on-splitting-after-tax-401k-contributions-for-roth-conversion/

Great way to get a lot more into a Roth. If your plan allows in service withdrawals to a Roth, then you can do it as often as you like (my plan allows this). Even if your plan does not allow in-service withdrawals, you can still convert all the after tax contributions to a Roth when you retire or leave the company.

The biggest benefit for me will be that a Roth has no RMD's, so that money can just sit there forever if I don't need it. If I don't change anything, my RMD's will exceed my required income starting at age 74 or so. I would prefer to just leave that money in the Roth for my heirs if I don't need it.

Tom

[kv968]

Take it you're already maxing out your Roth?

[corn18]

Take it you're already maxing out your Roth?

Backdoor Roth, yes. My retirement savings plan and priorities going forward:

max 401k pre-tax (will be catch up eligible next year)
max Backdoor Roth (myself and wife)
max 401k after tax (then convert to Roth each year)
additional after tax investment as possible

Am I missing anything? I am way behind, so I have a lot of catching up to do.

Tom

[Like2Plan]

Tom,
The web site for DH's 401K says after tax contributions are allowed, but it isn't one of the options for making a contribution, so I think there must be a form DH has to request and then mail it back to the plan... Is that what you have to do to make after tax contributions?

The web site also says in service withdrawals are allowed, but it looks like it will only deposit funds into a checking or a savings account from the web site. I'm not sure the after tax money could be put into DH's Roth if the money is first deposited into his checking or savings account...Or, would that be like a rollover? I think DH would want to elect a trustee to trustee transfer directly into his Roth account. So, I don't know if it would be a push (from his 401K account) or a pull (from his Roth account) event--maybe there is another form?

DH's online plan info/online forms is pretty sparse.

[corn18]

Tom,
The web site for DH's 401K says after tax contributions are allowed, but it isn't one of the options for making a contribution, so I think there must be a form DH has to request and then mail it back to the plan... Is that what you have to do to make after tax contributions?

The web site also says in service withdrawals are allowed, but it looks like it will only deposit funds into a checking or a savings account from the web site. I'm not sure the after tax money could be put into DH's Roth if the money is first deposited into his checking or savings account...Or, would that be like a rollover? I think DH would want to elect a trustee to trustee transfer directly into his Roth account. So, I don't know if it would be a push (from his 401K account) or a pull (from his Roth account) event--maybe there is another form?

DH's online plan info/online forms is pretty sparse.

My 401k is with Fidelity and they have an online option to select pre-tax and after tax contribution percentage. I would call your plan administrator and ask them how your DH should do it.

I am not sure of the exact mechanics of getting it out of the 401k and into the Roth. Haven't asked Fidelity the details yet. Call the plan administrator and ask them to walk you through it step by step. I do know you can only put the after tax contributions into the Roth. Any earnings in the after tax part of the 401k will have to be put into a traditional IRA. Usually the Roth and Traditional IRA's are held outside the 401k, so that's where the withdrawal and move comes into play.

Tom

[Like2Plan]

Well, maybe DH does not have that option after all. DH is also with fidelity, but the Rep said there is no form, it has to be selected online and if there isn't an aftertax option online, then it is not available on his plan.

But, at least I found out how to do a trustee-to-trustee transfer into his Roth IRA--something I want to do later on after DH quits work and our income is lower.

[LivingAlmostLarge]

Tom i have to write that I'm not sure it makes sense to do this. You have to look at your tax bracket and see if it's not worth it to just invest in regular accounts and then pull from them. The reason is you will have less income in retirement. You might be withdrawing at a much lower 15-25% bracket. I'm not sure this is something to look at. Depends on where you think your retirement is. It also depends on where you retire and what pots you are drawing from.

Talk to a really good CPA who can guide you with future planning.