After-tax Contributions & In-Plan Conversion

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quasiindex
Posts: 10
Joined: Thu Mar 16, 2017 11:22 am

After-tax Contributions & In-Plan Conversion

Post by quasiindex » Wed Oct 10, 2018 3:51 pm

Hi all,

So effective the beginning of next month, my employer's 401k plan allows the ability to convert after-tax contributions to a Roth 401(k) account with the plan, also known as an in-plan Roth 401(k) rollover. I am already maxing out my traditional 401k contributions as well as backdoor Roth IRA contributions and thus this has intrigued me. I am a bit confused about this though although it seems to be a popular saving strategy. Would I then convert these Roth 401(k) contributions to a normal Roth IRA outside of my employer's plan or just keep them in the Roth 401(k)? Also, how does this affect the $5.5K that I have been backdooring to a Roth IRA-- would this be included in the $36.5K or would that be in addition to it?

Thanks

P&C actuary
Posts: 120
Joined: Fri Jul 19, 2013 12:27 pm

Re: After-tax Contributions & In-Plan Conversion

Post by P&C actuary » Wed Oct 10, 2018 4:07 pm

quasiindex wrote:
Wed Oct 10, 2018 3:51 pm
Would I then convert these Roth 401(k) contributions to a normal Roth IRA outside of my employer's plan or just keep them in the Roth 401(k)?
My employer does not allow withdrawl/rollover of 401k while I am still employed. Check your plan.
quasiindex wrote:
Wed Oct 10, 2018 3:51 pm
how does this affect the $5.5K that I have been backdooring to a Roth IRA-- would this be included in the $36.5K or would that be in addition to it?
I am not aware of $36.5k amount. 401k contribution for most is $18.5k. The 5.5k traditional IRA contribution that was transferred to a Roth IRA would be separate from the $18.5k 401k limit.

emlowe
Posts: 96
Joined: Fri Jun 01, 2018 2:57 pm

Re: After-tax Contributions & In-Plan Conversion

Post by emlowe » Wed Oct 10, 2018 4:30 pm

P&C, this is the Mega Back Door: https://www.bogleheads.org/wiki/After-tax_401(k)

The limit is 55k - "normal" employee contributions - employer contributions for the "After-Tax" portion.

So if you max out your regular 401(k) contribution of 18.5 and your company does not contribute, then your after-tax maximum would be 36.5

OP: The Roth Backdoor is separate and distinct from the mega-back door - you can do both, and the Roth 5.5k does not impact your after-tax limit.

Your plan may allow "in-plan" rollovers of the After-Tax to the Roth 401(k) - this is what I do.
Your plan may also allow "in-service" rollovers to a complete separate Roth IRA.

Or your plan may allow both. There are benefits to each, I don't think there is a clear winner. It would depend somewhat on your Roth 401(k) choices in the plan. If your choices are poor, then the in-service rollover might be better.

billthecat
Posts: 290
Joined: Tue Jan 24, 2017 2:50 pm

Re: After-tax Contributions & In-Plan Conversion

Post by billthecat » Wed Oct 10, 2018 4:32 pm

quasiindex wrote:
Wed Oct 10, 2018 3:51 pm
Hi all,

So effective the beginning of next month, my employer's 401k plan allows the ability to convert after-tax contributions to a Roth 401(k) account with the plan, also known as an in-plan Roth 401(k) rollover. I am already maxing out my traditional 401k contributions as well as backdoor Roth IRA contributions and thus this has intrigued me. I am a bit confused about this though although it seems to be a popular saving strategy. Would I then convert these Roth 401(k) contributions to a normal Roth IRA outside of my employer's plan or just keep them in the Roth 401(k)?
Assuming your plan let's you do rollovers while you're still employed, it's really up to you. Consider other factors, such as which location would provide the best investment options, and also liability protection (your 401k is more protected than the IRA). And note that the Roth 401k is subject to RMDs. For what it's worth, I plan to leave it in the 401k (because I have good investment options, and to maximize protection), and roll it all over the year before RMDs kick in (to minimize RMDs).
quasiindex wrote:
Wed Oct 10, 2018 3:51 pm
Also, how does this affect the $5.5K that I have been backdooring to a Roth IRA-- would this be included in the $36.5K or would that be in addition to it?
In addition. IRA contributions do not count toward the 401k limit (55k this year). So you get both the backdoor Roth IRA, and the megabackdoor Roth 401k.

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