Fees for in-service withdrawals? (Fido Mega backdoor)

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MTZ
Posts: 45
Joined: Sun Oct 07, 2018 11:38 pm

Fees for in-service withdrawals? (Fido Mega backdoor)

Post by MTZ »

So DW got a new job with megacorp, they offer 401k after-tax contributions with in-service rollover (Mega), and we have a little extra to throw in at the end of the year after maxing 401k and regular backdoor roth so we are trying to get the hang of this (all thanks to the forum, thank you BH!! :beer )

Everything went pretty smooth when we called Fidelity to roll over the first contribution except we were surprised to find they charge a $25 fee for each in-service withdrawal. Is this typical? I had hoped we could just roll over each paycheck immediately to avoid gains but not if it's going to cost us $25 each time.. Is there any way around this? Do most BHs who do the MBDR just do the withdrawal quarterly or once a year and pay regular taxes on any gains to minimize any fees? I searched a bit but didn't find a clear answer and I think the fee may actually be new in 2019 with Fidelity.

Thanks in advance!
808
Posts: 54
Joined: Sun Sep 24, 2017 3:21 am

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by 808 »

My MegaCorp plan at Fidelity allows in-plan conversions of after-tax (plus earnings) to ROTH every six months at no charge. The earnings portion is taxable. So, I'd say your fee is plan dependent.
Spirit Rider
Posts: 13492
Joined: Fri Mar 02, 2007 2:39 pm

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by Spirit Rider »

The ability, frequency and fees to do in-service rollovers are entirely at the discretion of the plan.
FoolStreet
Posts: 1066
Joined: Fri Sep 07, 2012 12:18 am

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by FoolStreet »

MTZ wrote: Thu Nov 21, 2019 12:22 am So DW got a new job with megacorp, they offer 401k after-tax contributions with in-service rollover (Mega), and we have a little extra to throw in at the end of the year after maxing 401k and regular backdoor roth so we are trying to get the hang of this (all thanks to the forum, thank you BH!! :beer )

Everything went pretty smooth when we called Fidelity to roll over the first contribution except we were surprised to find they charge a $25 fee for each in-service withdrawal. Is this typical? I had hoped we could just roll over each paycheck immediately to avoid gains but not if it's going to cost us $25 each time.. Is there any way around this? Do most BHs who do the MBDR just do the withdrawal quarterly or once a year and pay regular taxes on any gains to minimize any fees? I searched a bit but didn't find a clear answer and I think the fee may actually be new in 2019 with Fidelity.

Thanks in advance!
Same issue here! Ugh. Any advice?

I assume I should just eat it once the transaction gets large enough. That’s 0.5% for every 5k. Wait for every 10k?

Ask nicely for a waiver?

Last suggestion, ask for an “auto ripc?” I think Fido will do an auto ripc but that gets transferred to plan Roth 401k, not personal Roth IRA. Some plans allow in service withdrawals from Roth 401k, some don’t. Mine doesn’t. Only from initial after tax contribution. NB: ripc = Roth in plan conversion

Seems like a 3 steep process...

Option 1-
Tradiditional 401k Plan with After Tax Monies - Rollover to: Personal Roth IRA ($25 fee)

Or

Option 2-
Tradiditional 401k Plan with After Tax Monies - Rollover to: Roth 401k (auto ripc)....Then, Roth 401k in-plan withdrawal/rollover to Personal Roth. We cannot do that last step when using this auto ripc workflow.

Also, for option 1 described above, I think Fido will allow the conversion to be split with after tax to personal Roth and earnings to personal traditional ira. Then presumably you can roll the traditional ira into 401k every year. (?)
AllMostThere
Posts: 142
Joined: Sat Dec 31, 2016 2:04 pm

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by AllMostThere »

Yes, both DW and myself have Fidelity 401K. Both charge the fee for "in-service" withdrawal. We just set a $$ amount target of >$5K when we do the move to ROTH IRA. Just a cost of doing business, but still worth it considering the benefit of over-funding the ROTH. :sharebeer
AlexanderTheMediocre
Posts: 58
Joined: Wed Aug 17, 2016 6:20 pm

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by AlexanderTheMediocre »

Our Fidelity plan let us automatically setup after tax 401k to Roth 401k for free but otherwise charged the 25 for rolling out to a Roth IRA. I decided to just do the immediate conversion inside the 401k plan since when I separate it will end up in a Roth anyway.
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Wiggums
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Joined: Thu Jan 31, 2019 8:02 am

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by Wiggums »

Spirit Rider wrote: Thu Nov 21, 2019 1:57 am The ability, frequency and fees to do in-service rollovers are entirely at the discretion of the plan.
+1
magicrat
Posts: 1068
Joined: Sat Nov 29, 2014 7:04 pm

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by magicrat »

Just do it once a year. Bunch all of your after-tax contributions so that there are minimal gains.
deltaneutral83
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Joined: Tue Mar 07, 2017 4:25 pm

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by deltaneutral83 »

Ask your landing spot (Rollover IRA) to pick up the tab on any fees the incoming firm (401k) is charging. I am in the process of this now.
Broken Man 1999
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Location: West coast of Florida, inland on high ground!

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by Broken Man 1999 »

BIL's 401k at Wells Fargo also charges $25 for in-service withdrawals.

We only drain his 401k plan once a year.

Gotta keep those stagecoaches rolling!

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go. " -Mark Twain
lakpr
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Joined: Fri Mar 18, 2011 9:59 am

Re: Fees for in-service withdrawals? (Fido Mega backdoor)

Post by lakpr »

FoolStreet wrote: Thu Nov 21, 2019 2:10 am Same issue here! Ugh. Any advice?
....
Any reason why you are not considering leaving the funds within the Roth 401k plan, especially if you have that facility available?
What difference does it make to you if the funds are in Roth 401k or Roth IRA? Are the choices within your plan bad ?

I prefer my retirement funds to be in the 401k plan(s) for their free creditor protections. This may or may not be a consideration for you. IRAs are governed by state law ... while my state (NJ) does offer equally strong creditor protections, I still prefer them to be in 401k since I am considering moving out of NJ in retirement.
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