Who is doing In Plan Roth conversions?

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Alan S.
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Who is doing In Plan Roth conversions?

Post by Alan S. »

Turns out the answer is - almost NOBODY!

See https://institutional.vanguard.com/VGAp ... RushtoRoth

Has anyone here done one? Thinking about it?
lostinjersey
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Re: Who is doing In Plan Roth conversions?

Post by lostinjersey »

My Megacorp considered it when the law first passed, because a few participants requested it. However, the buzz died down and we heard from our 401(k) consultants that there was very little demand globally, so we put it on the back burner. I predict it will languish there indefinitely.
Silence Dogood
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Re: Who is doing In Plan Roth conversions?

Post by Silence Dogood »

I would like to do this but it's not offered to me.
bsteiner
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Re: Who is doing In Plan Roth conversions?

Post by bsteiner »

Someone who expects to remain in a high tax bracket after retiring.

Someone very young.

Someone with low income in a given year.
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joe8d
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Re: Who is doing In Plan Roth conversions?

Post by joe8d »

bsteiner wrote:Someone who expects to remain in a high tax bracket after retiring.

Someone very young.

Someone with low income in a given year.
:thumbsup
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Bill M
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Re: Who is doing In Plan Roth conversions?

Post by Bill M »

Doing a conversion while still working??? I'm not surprised it is nearly nobody. I had one of the exceptional cases a few years ago, when I had some headroom in the 28% AMT bracket and took advantage of it. But after retiring, I certainly plan to do significant in-plan Roth conversions in the so-called gap years before starting the pension and Social Security.
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Alan S.
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

Originally, the 2010 legislation required a distributable event in order to do an IRR, so in many cases it was offered by a plan in order to retain assets that would otherwise have been rolled out to a Roth IRA directly or to a TIRA and then converted.

Recent IRS guidance expanded IRRs effective 2013 to allow them for otherwise non distributable amounts, thereby opening up these for active employees.

Lack of activity can probably be attributed to:
1) For active employees, IRRs will put them in a higher tax bracket; and no recharacterizations allowed if the investment tanks
2) For separated employees, rollovers to IRAs are generally preferred and Roth IRAs have a few better provisions that designated Roth accounts.
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House Blend
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Re: Who is doing In Plan Roth conversions?

Post by House Blend »

An in-plan conversion option would make sense for me, but not right now. (My employer does offer Roth options, but am not sure whether they allow in-plan conversions. It's on my radar, but not urgent.)

At the moment I am in peak earning/peak tax rate years, and pre-tax contributions are a better deal for me. However, my employer offers a very nice menu: institutional Vanguard funds, plus TIAA Traditional and Real Estate. Doing Roth conversions there in early retirement looks more attractive than rolling to an IRA and doing conversions from there.

It would also be a great deal in a sabbatical year or other leave of absence. You want to take advantage of the low tax-bracket, but don't have an existing trad IRA to tap for Roth conversions. Another option would be simply to temporarily switch to Roth contributions, but it seems to me that a one-time conversion late in the year offers a bit more precision in bracket-filling.

Added: More generally it is a good option for someone anticipating a mix of high income years when you need to use a Backdoor Roth, and low tax years when you want to do Roth conversions. If your plan offers Roth conversions, there's no need to keep a trad IRA open as a buffer for those conversions.
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Re: Who is doing In Plan Roth conversions?

Post by placeholder »

My plan doesn't offer it (or even Roth for that matter) but even if they added it I wouldn't use it as long as they continued to offer after tax contributions and in service rollovers.
msilenus
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Re: Who is doing In Plan Roth conversions?

Post by msilenus »

I do roth in-plan conversions of after-tax contributions. I'm going to pay a little bit extra in tax for it this year, because the market has been up for at least one of my conversions.
manwithnoname
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Re: Who is doing In Plan Roth conversions?

Post by manwithnoname »

there are too many negatives is doing an in plan roth conversion:

1. Must pay fed and state tax on money that is likely to be taxed at lower rate when distributed or converted to a roth IRA after employee stops working. In many states retirement benefits are wholly or partially exempt from tax after a certain age, e.g. 59 1/2 while in sevice conversions is subject to state income tax.

2. Taxes must be paid from assets outside of the plan which reduces cash flow to pay expenses or make investments in assets that are taxed at favorable rates of 0 or 15%.

3. No opportunity to recharacterize if value of assets declines after conversion.

The In plan roth conversion is a solution in search of a problem.
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dodecahedron
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Re: Who is doing In Plan Roth conversions?

Post by dodecahedron »

I would consider it if my employer allowed it, since it would give me the option of adding some TIAA Traditional in my Roth 403b SRA, which pays a higher rate (3%) than the TIAA Traditional in my Roth IRA (1%)--and because I am currently/likely in a relatively low tax bracket as a Qualifying Widow for this year and next year.
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slow n steady
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Re: Who is doing In Plan Roth conversions?

Post by slow n steady »

I would like to have the option in my 457b. I am young and have some in Traditional and some in Roth. I am usually in the 15% tax bracket. If I get to the point where I can max out all of my tax deferred space, I think it would make sense to start converting the Traditional to Roth as long as I stay in the 15% bracket.

I would like to take a year off in about 15 years (doesn't hurt to plan) and in Plan conversions would work well during that time.

I am still not sure how distributions from the 457b work. I believe I have to take pro rata amount from Roth and Traditional for every distribution I take. I would prefer to have it all in Roth by the time I retire (I am maxing out my Roth IRA and Roth 457b and will continue as long as I am in the 15% bracket). Most people would roll their 401K over to an IRA and split up their Roth and Traditional amounts there. I probably won't be able to do that because I plan on retiring before 60 and can take withdrawals from my 457b penalty free.
SpecialK22
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Re: Who is doing In Plan Roth conversions?

Post by SpecialK22 »

I've done one. Previously I just rolled the after-tax portion over to a Roth IRA, but when I left my last employer I converted everything to Roth within the plan. With the In Plan conversion though I couldn't just isolate the after-tax amount, I had to convert pre-tax and employer contributions first. I'm really hoping the TSP enacts an In Plan conversion in the future, as I have a fair amount of tax exempt contributions from deployments that I would really like to convert to Roth.
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oncorhynchus
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Re: Who is doing In Plan Roth conversions?

Post by oncorhynchus »

I would really like the TSP to offer the ability to do an in-plan Roth conversion. I expect my marginal tax rate to remain the same, at best 25% for maybe a year or two. Until that time, my Trad TSP funds, contributed before Roth was an option, will remain... :(

o
gsk
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Re: Who is doing In Plan Roth conversions?

Post by gsk »

I have started doing it recently and just do it for after tax contributions. I contribute after tax money for each pay check and then immediately do the in plan conversion only on the after tax contributions and essentially don't pay any tax.
stan1
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Re: Who is doing In Plan Roth conversions?

Post by stan1 »

gsk wrote:I have started doing it recently and just do it for after tax contributions. I contribute after tax money for each pay check and then immediately do the in plan conversion only on the after tax contributions and essentially don't pay any tax.
So you are doing 12, 24,or 26 (how ever many pay periods you have) conversions per year? Very similar strategy to a backdoor roth contribution although I'd guess the percentage of people who have access to a Roth 401K, Roth 401K conversions, and after tax contributions is very small. I'd also be curious if this transaction is entirely automated or if it is unsustainable from an administrative cost perspective if a lot of people did this.
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Silence Dogood
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Re: Who is doing In Plan Roth conversions?

Post by Silence Dogood »

I am in my early 20s and have about $20,000 in my 401(k). My income is low so I could convert half of it one year and half the next and I would still be in the 15% tax bracket. With tax credits, I likely wouldn't have a federal tax liability even after the conversion.

My employer doesn't offer it (or a Roth at all), but this is an example of a case where it would make sense.
Jfet
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Re: Who is doing In Plan Roth conversions?

Post by Jfet »

stan1 wrote:
gsk wrote:I have started doing it recently and just do it for after tax contributions. I contribute after tax money for each pay check and then immediately do the in plan conversion only on the after tax contributions and essentially don't pay any tax.
So you are doing 12, 24,or 26 (how ever many pay periods you have) conversions per year? Very similar strategy to a backdoor roth contribution although I'd guess the percentage of people who have access to a Roth 401K, Roth 401K conversions, and after tax contributions is very small. I'd also be curious if this transaction is entirely automated or if it is unsustainable from an administrative cost perspective if a lot of people did this.
I am doing what gsk is but am limiting it to about 4 times a year. Fidelity said they can do it however often I wish, but 24 times a year would make me feel like a pest.

For someone who has the ability to do after tax 401k contributions and have that money kept separate from pre tax 401K, I do not see the downside of an in plan conversion of the money to a Roth, unless you just like paying tax later on gains.
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Alan S.
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

The after tax sub account that you can make large after tax contributions to is typically distributable while you are still working. That means you have your choice of rolling it to your Roth IRA or doing an IRR. The Roth IRA has more favorable tax rules than the IRR and if you opt for the IRR, that money can then be tied up until you separate from service because it is no longer in the after tax portion of the pre tax account. This is another reason that IRRs are rarely being done.
msilenus
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Re: Who is doing In Plan Roth conversions?

Post by msilenus »

Alan S. wrote:The after tax sub account that you can make large after tax contributions to is typically distributable while you are still working. That means you have your choice of rolling it to your Roth IRA or doing an IRR. The Roth IRA has more favorable tax rules than the IRR and if you opt for the IRR, that money can then be tied up until you separate from service because it is no longer in the after tax portion of the pre tax account. This is another reason that IRRs are rarely being done.
Would you mind explaining In what sense are the tax rules more favorable? I thought they were essentially identical.
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Re: Who is doing In Plan Roth conversions?

Post by gsk »

Stan1, Jfet
Yes, I agree that it would be too much if you have to do it for every pay check. So what I do is, I contribute heavily and limit to just 8 to 9 pay checks and then do conversions for each of them. Of course your pay check home looks awful (most of the pay check money is diverted to after tax contributions) but this way I just limit my conversion to only 8 to 9 pay checks. Please note that this is NOT automatic. But luckily, I can do the in plan conversion online without the need of getting any help from Vanguard (My Employer Plan is administered by Vanguard). This is the other reason why I chose the in plan because you can limit the interactions with customer service representatives. I have even the option of in-service withdrawals but in that case, every time I do the ROTH IRA I need to call them over phone. Moreover, my employer plan offers Vanguard 2040 trust fund which has all the funds that I want at a lower expense ratio. Good Luck.
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Alan S.
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

msilenus wrote:
Alan S. wrote:The after tax sub account that you can make large after tax contributions to is typically distributable while you are still working. That means you have your choice of rolling it to your Roth IRA or doing an IRR. The Roth IRA has more favorable tax rules than the IRR and if you opt for the IRR, that money can then be tied up until you separate from service because it is no longer in the after tax portion of the pre tax account. This is another reason that IRRs are rarely being done.
Would you mind explaining In what sense are the tax rules more favorable? I thought they were essentially identical.
There are many more complexities with designated Roth in plan rollovers vs. a conversion to a Roth IRA. See the following comparison:

http://www.irs.gov/pub/irs-tege/roth_differences.pdf

One of the differences shown is the tax rules for non qualified distributions. With a Roth IRA, your conversions come out only after your regular contributions and your earnings come out last. With a Roth 401k, taxable earnings are pro rated into every distribution, and since conversion funds also come out along with other amounts, you are exposed to both taxes and penalty sooner than for a Roth IRA.

Example: Your Roth 401k consists of 10k of salary deferrals, 70k of in plan Roth rollovers in the last 5 years of which 60k was non taxable, and 20k of earnings. You want to withdraw 15k before you are 59.5. The 15k consists of:
1,500 of your Roth deferrals
10,500 of your in plan rollovers, of which 1,500 is subject to the 10% penalty
3,000 of earnings, which is subject to tax and penalty
Total taxable amount is 3,000 and 4,500 is subject to penalty

Had this distribution come from a Roth IRA conversion, there would not be any taxable amount and the penalty would only be on $715. Quite a difference.

Further, when you do the in plan conversion, it may matter whether your plan allows conversions of only distributable amounts (your after tax sub account), or also non distributable amounts (your entire pre tax 401k account). In this case you must be very careful to specify that you only want to roll the after tax sub account amounts to the Roth 401k. Otherwise, the plan could pro rate between the after tax account and the pre tax balance and your in plan conversion include taxable amounts.

Complications can also exist if your convert amounts which later become subject to discrimination testing, or you have a plan loan which is converted to the Roth 401k.

You also have to roll the Roth 401k over to a Roth IRA prior to the year you reach 70.5 in order to avoid RMDs on the Roth 401k. And your beneficiary designation might be restricted because your spouse is required to be the beneficiary if you are married, or sign a waiver. Other beneficiary formats might not be available.
msilenus
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Re: Who is doing In Plan Roth conversions?

Post by msilenus »

Thanks Alan. I didn't know that the money coming out was treated differently. I don't think that will change what I'm doing in the near future, but it's definitely important to understand.

It seems like if I wanted the IRA withdrawal ordering, I could -after separation from my employer- roll Roth 401(k) money over into a Roth IRA, and wait 5 years. Is that accurate, as far as you know?
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Re: Who is doing In Plan Roth conversions?

Post by Jfet »

It still seems like a pretty good deal even with the differences between the Roth 401K and a Roth IRA.

$20K a year sheltered from future taxes and with minimal conversion costs (if converted relatively quickly in a flat market).
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

msilenus wrote:Thanks Alan. I didn't know that the money coming out was treated differently. I don't think that will change what I'm doing in the near future, but it's definitely important to understand.

It seems like if I wanted the IRA withdrawal ordering, I could -after separation from my employer- roll Roth 401(k) money over into a Roth IRA, and wait 5 years. Is that accurate, as far as you know?
You qualify for the Roth IRA ordering rules the minute your Roth 401k is rolled into the Roth IRA. You must wait 5 years only if you want to withdraw in plan conversions rolled to the Roth IRA before 5 years passes. A penalty would apply only to the taxable amount of the in plan rollover during that period, which also automatically ends when you reach 59.5. Your earnings are not tax free until your Roth IRA becomes qualified.

If your Roth 401k was already qualified when you rolled it over, the balance would be treated as regular Roth IRA contributions that could be withdrawn tax and penalty free anytime. In this case you would only have to wait until the Roth IRA was qualified in order to withdraw earnings generated in the Roth IRA itself after the rollover.
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Re: Who is doing In Plan Roth conversions?

Post by sesq »

Bill M wrote:Doing a conversion while still working??? I'm not surprised it is nearly nobody. I had one of the exceptional cases a few years ago, when I had some headroom in the 28% AMT bracket and took advantage of it.
I would do it this year as I am in that exact circumstance. But, alas, my plan does not offer it. This is an unusual year for my comp, so I don't expect to be able to do it in the future. I estimate I'll pay 30% blended in retirement, so, 2% is 2%. Then again the inability to re-characterize is a disincentive.
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Re: Who is doing In Plan Roth conversions?

Post by ZiziPB »

My plan offers the option for after-tax contributions but they must be "seasoned" for at least 2 years. I started after tax contributions last year so I think I will convert that batch next year depending on what my tax situation looks like....
airahcaz
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Re: Who is doing In Plan Roth conversions?

Post by airahcaz »

Bill M wrote:Doing a conversion while still working??? I'm not surprised it is nearly nobody. I had one of the exceptional cases a few years ago, when I had some headroom in the 28% AMT bracket and took advantage of it. But after retiring, I certainly plan to do significant in-plan Roth conversions in the so-called gap years before starting the pension and Social Security.
What are the gap years?
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Re: Who is doing In Plan Roth conversions?

Post by Angst »

I would be doing it now if allowed, but my 401k won't let me until I'm 59 (or it might be 59 1/2), so for now I'm just marking time.
Bill M
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Re: Who is doing In Plan Roth conversions?

Post by Bill M »

airahcaz wrote: What are the gap years?
The gap years are the low-income years after you retire, before you start pension/SocialSecurity. In my case, I retired at 61, will start pension at 65 and Social Security at 70. So I have several years with little or no taxable income. I can take advantage of the standard deduction amount and personal exemption amount to do Roth conversions, and still have zero taxable income. That's essentially a tax-free Roth conversion.

And you can (and arguably should) go a step further. With required minimum distributions starting at age 70 1/2, will the RMD push you into a higher marginal bracket than you would be without the RMD? If so, you may want to do additional Roth conversions up to the top of your age 70 pre-RMD tax bracket, and thus minimize the extra tax bite on the RMDs.
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Re: Who is doing In Plan Roth conversions?

Post by placeholder »

Angst wrote:I would be doing it now if allowed, but my 401k won't let me until I'm 59 (or it might be 59 1/2), so for now I'm just marking time.
Are you sure about that for in plan conversions (not rollovers out)?
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Re: Who is doing In Plan Roth conversions?

Post by White Coat Investor »

It would make sense for a really high earner who expected to stay in the top bracket in retirement, especially if the profit-sharing contributions can be converted. It's like a mega backdoor Roth. You can do it easily with a SEP-IRA. Anyone know of an individual 401(k) that allows it?
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Bill M
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Re: Who is doing In Plan Roth conversions?

Post by Bill M »

Angst wrote:I would be doing it now if allowed, but my 401k won't let me until I'm 59 (or it might be 59 1/2), so for now I'm just marking time.
Prior to 2013 you could only do in-plan roth conversions on funds that were "withdrawable" from the 401k plan, so typically could only be done at age 59 1/2. The "fiscal cliff" legislation (passed in early January 2013) changed that to allow any funds to be converted. Take a careful look at your plan details to see if it makes the restriction itself, or defaults to the restriction by law.
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Re: Who is doing In Plan Roth conversions?

Post by airahcaz »

Bill M wrote:
airahcaz wrote: What are the gap years?
The gap years are the low-income years after you retire, before you start pension/SocialSecurity. In my case, I retired at 61, will start pension at 65 and Social Security at 70. So I have several years with little or no taxable income. I can take advantage of the standard deduction amount and personal exemption amount to do Roth conversions, and still have zero taxable income. That's essentially a tax-free Roth conversion.

And you can (and arguably should) go a step further. With required minimum distributions starting at age 70 1/2, will the RMD push you into a higher marginal bracket than you would be without the RMD? If so, you may want to do additional Roth conversions up to the top of your age 70 pre-RMD tax bracket, and thus minimize the extra tax bite on the RMDs.
This is simply brilliant, and makes the case for very rarely converting to Roth prior to 60/61. Would you break up the conversions, I'd assume so, let's say the pretax 401K is $1M for demonstration sake. One wouldn't convert the full million in one year to Roth cause that will certainly be at the highest marginal tax rate, so one can only convert whatever the max income is for the 0% or 15% brackets per year?
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Bill M
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Re: Who is doing In Plan Roth conversions?

Post by Bill M »

airahcaz wrote:
Bill M wrote:
airahcaz wrote: What are the gap years?
The gap years are the low-income years after you retire, before you start pension/SocialSecurity. In my case, I retired at 61, will start pension at 65 and Social Security at 70. So I have several years with little or no taxable income. I can take advantage of the standard deduction amount and personal exemption amount to do Roth conversions, and still have zero taxable income. That's essentially a tax-free Roth conversion.

And you can (and arguably should) go a step further. With required minimum distributions starting at age 70 1/2, will the RMD push you into a higher marginal bracket than you would be without the RMD? If so, you may want to do additional Roth conversions up to the top of your age 70 pre-RMD tax bracket, and thus minimize the extra tax bite on the RMDs.
This is simply brilliant, and makes the case for very rarely converting to Roth prior to 60/61. Would you break up the conversions, I'd assume so, let's say the pretax 401K is $1M for demonstration sake. One wouldn't convert the full million in one year to Roth cause that will certainly be at the highest marginal tax rate, so one can only convert whatever the max income is for the 0% or 15% brackets per year?
So lets put some numbers on things. If your 401k is $1M at 62, income was likely high, so lets assume SocSec PIA of 2500 for both you and spouse. Waiting until 70 to start SocSec increases benefit by 32%, taxable at 85%, and that is remarkably close to the upper limit of the 15% tax bracket (after the standard deduction and two exemptions). So the RMDs from the 401k are basically all taxed at 25%. Assuming 3% real growth in the 401k, the first few RMDs would be approximately (in today's dollars) $50K (less $12.5K for extra tax).

Instead during the years 62 to 70 convert up to the top of the 15% bracket plus deductions. That would be $92K/yr to convert, and result in about $10K/yr in taxes. Doing this for 8 years will reduce the pre-tax 401k by about 2/3, and reduce the RMDs to approximately $15K (less 25% or $3.75K for taxes).

More taxes now, but less later. If you live past your mid 80s, it comes out in your favor. If you don't, it comes out in your heir's favor, since inheriting a Roth is much nicer than a pre-tax 401k. Seems like a winning strategy to me.

You could be more aggressive in the conversions. Since the RMDs will be taxed at 25%, convert an additional amount now at 25%, so it can grow tax-free. You can adjust the extra amount so that the entire 401k is converted to Roth before 70 1/2, and then there are no RMDs. It moves the breakeven point, but comes out further ahead for longer lifespans.

As for converting prior to retiring, if your income is variable there may be years below the 25% tax bracket that can be utilized as well. But for regular salary from employment, I'd agree that it is only the exceptional cases.
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Re: Who is doing In Plan Roth conversions?

Post by Jfet »

Sorry for bringing this thread back to life but I just did my first in plan conversion today and want to confirm they did it the correct way.

Had $600,000 in the 401K consisting of $586,200 of pre tax contributions and employer match plus $13,800 of after tax contributions from this year. The $13,800 is kept in the same 401K account but is tracked separately, and Fidelity informed me the current value was $13,790 (because of the poor market this year). They said there would be no tax if I did a direct in plan conversion to a Roth IRA of this after tax 401K money and had me set up a Roth account.

Does this sound correct? $13,790 will come from the after tax portion of the 401K and go directly to a Roth IRA, generating no tax bill?
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Alan S.
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

Jfet wrote:Sorry for bringing this thread back to life but I just did my first in plan conversion today and want to confirm they did it the correct way.

Had $600,000 in the 401K consisting of $586,200 of pre tax contributions and employer match plus $13,800 of after tax contributions from this year. The $13,800 is kept in the same 401K account but is tracked separately, and Fidelity informed me the current value was $13,790 (because of the poor market this year). They said there would be no tax if I did a direct in plan conversion to a Roth IRA of this after tax 401K money and had me set up a Roth account.

Does this sound correct? $13,790 will come from the after tax portion of the 401K and go directly to a Roth IRA, generating no tax bill?
Yes, it sounds correct but is not an IRR (in plan Roth rollover). An IRR would roll the 13,790 into your Roth 401k and therefore remain in the plan (thus the name "In Plan Roth rollover"). What you are doing here is a rollover to a Roth IRA (called a "qualified rollover contribution", which I think is preferable unless you need ERISA creditor protection from the plan.

Either way, IRR or qualified rollover contribution to your Roth IRA, the transaction is not taxable because you are only moving after tax amounts and you have no earnings in the after tax sub account. Since you can request a distribution FROM ONLY your after tax sub account, there is no pro rating with the 586k of pre tax 401k assets.

Again, unless your Roth IRA would have a creditor exposure in the state you reside in, what you did was preferable to an IRR and equally tax free.
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Re: Who is doing In Plan Roth conversions?

Post by Jfet »

Thanks Alan. I did just confirm in the tax documents Fidelity has too:

"If your Plan allows in-plan Roth conversions, and you roll over the payments to a designated Roth account in the plan, the amount of the payment rolled over (reduced by any after-tax amounts directly rolled over) will be subject to income taxes. However the 10% additional tax on early distributions will not apply (unless you take the amount rolled over out of the designated Roth account within the 5-year period that begins on January 1 of the year of the rollover)"

The bold section is the key. Because this is after tax money and because the market has not generated any earnings, this will be a non taxable event. Really is a no brainer.
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Alan S.
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Re: Who is doing In Plan Roth conversions?

Post by Alan S. »

It is not clear from your recent posts whether this rollover will be going into your Roth 401k OR your Roth IRA. Which is it?

Tax free either way.
DVMResident
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Joined: Mon Aug 01, 2011 8:15 pm

Re: Who is doing In Plan Roth conversions?

Post by DVMResident »

msilenus wrote:I do roth in-plan conversions of after-tax contributions.
+1 That's my plan this December (only allowed once a year).
This is my first year with this option. Hopefully, everything goes smoothly.
Jfet
Posts: 1081
Joined: Tue Dec 21, 2010 6:20 pm

Re: Who is doing In Plan Roth conversions?

Post by Jfet »

Alan S. wrote:It is not clear from your recent posts whether this rollover will be going into your Roth 401k OR your Roth IRA. Which is it?

Tax free either way.
Sorry Roth IRA. They had me create a Roth IRA in my account suite at Fidelity. Fidelity will take the money as an in service withdrawal from the after tax sub account of my 401K and directly put it in that Roth IRA.
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