401k After Tax Contributions and Taxable Accounts

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Topic Author
csh
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Joined: Mon Mar 23, 2020 6:19 pm

401k After Tax Contributions and Taxable Accounts

Post by csh » Sat Mar 28, 2020 1:25 pm

This is not meant to be a one vs. the other question. I am at a point now where I am maxing out my pre-tax 401k contributions, catch up 401k contributions, and Roth contributions. Due to a bit of a windfall this March I have fully funded my Roth and my DW's Roth for 2019 and 2020. After figuring out our budget I plan to increase my 401k contributions which will go in after tax but still earn tax deferred. Whenever my employment with this company ends, I should be able to roll the after tax contributions over to a Roth with the earnings and pre tax contributions to a TIRA.

Along with the after tax 401k contributions my employer has a n RSU like long term incentive program which lands in a brokerage account as cash. This bonus is not factored into our normal budgeting and is therefore available to be disposed with as I see fit. I am think this will likely go to an index fund.

Am I missing any other opportunities for my after tax dollars?
Last edited by csh on Fri Apr 03, 2020 5:16 am, edited 1 time in total.

lakpr
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by lakpr » Sat Mar 28, 2020 2:20 pm

If you have access to ESPP / RSU, do take advantage of it. But when the shares vest, sell them immediately. DO not feel enamored with the stock of your own employer, if things turn south, not only your employment but also your life savings can all go poof.

The main advantage of after-tax 401k contributions is the ability to convert them into Roth contributions within the plan. Just like backdoor Roth, where you make a non-deductible contribution but then turn around and convert to Roth, so you can contribute non-deductible after-tax contributions and immediately turn around and convert to Roth 401k. Some plans may limit the number of conversions per year, but if you are the fortunate few who can immediately convert and unlimited number of times an year, this essentially gets you up to an additional $25k to $30k in Roth space.

No need to leave the money into your after-tax 401k without conversion and have the growth as tax-deferred. Convert to Roth within the plan, the growth also can be tax free. You just need to find out the number of times per year you can convert, which is a plan-specific feature.

See the wiki entry After-tax 401(k)

nif
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by nif » Sat Mar 28, 2020 2:24 pm

Why wait to roll into roth after you leave the company? Just do it soon.

terran
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by terran » Sat Mar 28, 2020 2:25 pm

After tax that isn't quickly converted to Roth is worse than taxable investing because you'll someday have to pay tax on the gains at ordinary income tax rates which are higher than long term capital gains rates. Unless you can roll over to Roth while still working (in service withdrawals or in plan conversions), or you plan/expect to change jobs soon I probably wouldn't put money in the after tax account.

Topic Author
csh
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by csh » Sat Mar 28, 2020 4:41 pm

I'm glad I asked the question. No ESPP or RSUs for me. Being able to convert my after tax contributions to a Roth prior to doing a rollover of the account is fantastic. I did poke around on the Fidelity web site to see if I can do this, but the web site was having some difficulty so I gave up for the time being. i may have to contact Fidelity to get some help with this. Right now my 401k is pretax and not a Roth 401k. I suspect this might be easier if I have a Roth 401k too.

Townline Lake
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by Townline Lake » Sat Mar 28, 2020 5:35 pm

I have a 401k with Fidelity and make after tax contributions. I do roll these to my Roth IRA also at Fidelity but have to call Fidelity to do this each time. A bit of a pain, but worth it to me in order to complete the Mega Backdoor Roth. Because my Roth IRA is at Fidelity, there is no charge and I can roll fund to fund so no time out of the market.

iljets10
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by iljets10 » Sat Mar 28, 2020 5:58 pm

I have a Fidelity 401k and it varies by plan. For us, we had to call once and then they will automatically detect any after tax contributions and convert them into Roth 401k overnight.

Can’t beat that!

Topic Author
csh
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by csh » Sat Mar 28, 2020 6:21 pm

Thanks all! This information is so helpful. :beer <--Cheers

I guess it is a good thing that I setup my Roth with Fidelity then. I do have a Vanguard account that I used to do an IRA rollover from a high fee account to a low fee account and I almost setup the Roth there. Monday morning I will call Fidelity to see if I can get my 2019 spillover contributions moved to my Roth if there is anybody there to answer the phone during this crisis. It's not that much money, but will be worth it to find out how to do it when there is more money on the line. After that I will have to wait for a couple of paychecks to come in before deciding how much extra I can put towards my 401k contributions. Between an upcoming pay raise + W4 adjustment (paid way too much taxes) + added catch up contributions my paycheck is in a state of flux.

MoneyMarathon
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by MoneyMarathon » Sat Mar 28, 2020 7:11 pm

csh wrote:
Sat Mar 28, 2020 1:25 pm
Whenever my employment with this company ends, I should be able to roll the after tax contributions over to a Roth with the earnings and pre tax contributions to a TIRA.
Some thoughts, depending on your situation you may or may not care:

I would not want to hold any money in a traditional IRA. This is because it interferes with the backdoor Roth, which allows contribution to a Roth IRA tax-free regardless of income.

I would prefer to keep the money in the employer's 401(k) or another employer's 401(k), per Spirit Rider's corrections.
Last edited by MoneyMarathon on Sat Mar 28, 2020 8:18 pm, edited 1 time in total.

Spirit Rider
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by Spirit Rider » Sat Mar 28, 2020 7:47 pm

MoneyMarathon wrote:
Sat Mar 28, 2020 7:11 pm
csh wrote:
Sat Mar 28, 2020 1:25 pm
Whenever my employment with this company ends, I should be able to roll the after tax contributions over to a Roth with the earnings and pre tax contributions to a TIRA.
(2) I wouldn't want to have all my retirement assets in IRA accounts because the state of California gives a judge discretion to require them to be used to repay liabilities, whereas 401(k) accounts are federally protected in this regard. So I would prefer to roll over into a solo 401(k), for example.
Both of these statements are incorrect.

Rollover IRA balances have full federal bankruptcy protection. In California Rollover IRA balances from qualified plans retain full state level creditor protection. It is only contributory IRA balances that are subject to a court's determination of "amount necessary for support." As in California, IRA creditor protection is a function of state law.

Full ERISA "anti-alienation" protection is only provided to ERISA 401k plans. A one-participant 401k plan is NOT an ERISA 401k, because by definition is does not have eligible participants other than owners and optionally their spouses.

MoneyMarathon
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by MoneyMarathon » Sat Mar 28, 2020 8:16 pm

Spirit Rider wrote:
Sat Mar 28, 2020 7:47 pm
Rollover IRA balances have full federal bankruptcy protection. In California Rollover IRA balances from qualified plans retain full state level creditor protection. It is only contributory IRA balances that are subject to a court's determination of "amount necessary for support." As in California, IRA creditor protection is a function of state law.

Full ERISA "anti-alienation" protection is only provided to ERISA 401k plans. A one-participant 401k plan is NOT an ERISA 401k, because by definition is does not have eligible participants other than owners and optionally their spouses.
Thanks for the info.

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Sun Mar 29, 2020 12:19 am

iljets10 wrote:
Sat Mar 28, 2020 5:58 pm
I have a Fidelity 401k and it varies by plan. For us, we had to call once and then they will automatically detect any after tax contributions and convert them into Roth 401k overnight.

Can’t beat that!
I've never heard of this - they take your after-tax 401k contributions and automatically roll them into the Roth portion of your 401k? That's incredible, I am surprised it is legal. That is basically like allowing an addtional $36k in Roth contributions a year.

Anyone else have any insights into this practice?

Spirit Rider
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by Spirit Rider » Sun Mar 29, 2020 7:50 am

justsomeguy2018 wrote:
Sun Mar 29, 2020 12:19 am
iljets10 wrote:
Sat Mar 28, 2020 5:58 pm
I have a Fidelity 401k and it varies by plan. For us, we had to call once and then they will automatically detect any after tax contributions and convert them into Roth 401k overnight.

Can’t beat that!
I've never heard of this - they take your after-tax 401k contributions and automatically roll them into the Roth portion of your 401k? That's incredible, I am surprised it is legal. That is basically like allowing an addtional $36k in Roth contributions a year.

Anyone else have any insights into this practice?
It is becoming quite common in plans that support both employee after-tax contributions and an in-plan Roth rollover (IRR).

This in compliance with applicable sections of the Internal Revenue Code, IRS rules and regulations.

It is fundamentally no different than a Backdoor Roth, except the IRS has explicitly provided it with "substantial authority".

Topic Author
csh
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Joined: Mon Mar 23, 2020 6:19 pm

Re: 401k After Tax Contribitions and Taxable Accounts

Post by csh » Sun Mar 29, 2020 7:59 am

I read my plan documents and it appears that I can do an In Plan Roth Conversion. In addition to my 401k I have a TIRA and a SEP IRA from a previous employer. I assume that this interferes with my ability to do a mega backdoor Roth conversion. None of the articles I have read on mega backdoor conversions mention this, but I do see that being a problem with backdoor TIRA to Roth conversions. I am not interested in doing a Roth conversion on those accounts due to the tax implications and the fact that I already funded my Roth for 2020. It does look like I can roll those into my 401k though.

lakpr
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by lakpr » Sun Mar 29, 2020 8:03 am

csh wrote:
Sun Mar 29, 2020 7:59 am
I read my plan documents and it appears that I can do an In Plan Roth Conversion. In addition to my 401k I have a TIRA and a SEP IRA from a previous employer. I assume that this interferes with my ability to do a mega backdoor Roth conversion. None of the articles I have read on mega backdoor conversions mention this, but I do see that being a problem with backdoor TIRA to Roth conversions. I am not interested in doing a Roth conversion on those accounts due to the tax implications and the fact that I already funded my Roth for 2020. It does look like I can roll those into my 401k though.
Nope, the presence of SEP-IRA and traditional IRA has no impact on the Mega Backdoor Roth.

The only question I have is, if you do have these accounts, why not consider rolling them over into your existing 401k plan and consolidate? Not only will you gain the ERISA non-alienation protections on the amounts in your 401k plan, but also clear the decks for doing the regular backdoor Roth?

retiredjg
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by retiredjg » Sun Mar 29, 2020 8:10 am

csh wrote:
Sun Mar 29, 2020 7:59 am
I read my plan documents and it appears that I can do an In Plan Roth Conversion.
Is that the only choice or can you also roll the after-tax account out to Roth IRA?

In addition to my 401k I have a TIRA and a SEP IRA from a previous employer. I assume that this interferes with my ability to do a mega backdoor Roth conversion.
No these accounts do not interfere because the mega back door does not include or go through your traditional IRA.

Your tIRA and SEP IRA would interfere with the ordinary back door because that process does involve conversion of a traditional IRA.

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Re: 401k After Tax Contribitions and Taxable Accounts

Post by grabiner » Sun Mar 29, 2020 9:18 am

terran wrote:
Sat Mar 28, 2020 2:25 pm
After tax that isn't quickly converted to Roth is worse than taxable investing because you'll someday have to pay tax on the gains at ordinary income tax rates which are higher than long term capital gains rates. Unless you can roll over to Roth while still working (in service withdrawals or in plan conversions), or you plan/expect to change jobs soon I probably wouldn't put money in the after tax account.
This depends on what the money is invested in. If you would otherwise hold bonds in your taxable account, bonds in an after-tax 401(k) are better, as you defer the tax, and it will be taxed at the same tax rate when you withdraw (more likely, at a lower rate since you won't withdraw until retirement). Stocks are better in a taxable account than in an after-tax 401(k) for a long holding period.
Wiki David Grabiner

Topic Author
csh
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Joined: Mon Mar 23, 2020 6:19 pm

Re: 401k After Tax Contribitions and Taxable Accounts

Post by csh » Sun Mar 29, 2020 12:22 pm

lakpr wrote:
Sun Mar 29, 2020 8:03 am
The only question I have is, if you do have these accounts, why not consider rolling them over into your existing 401k plan and consolidate? Not only will you gain the ERISA non-alienation protections on the amounts in your 401k plan, but also clear the decks for doing the regular backdoor Roth?
I will definitely consider doing that. Up until recently these accounts have really been a set and forget at least until the rollover account ended up being converted to one of those that had a 1.5% fee. Getting out of that account is how I discovered low cost investing few years ago. The only problem is that I never went back to evaluate my 401k holdings. I am in the process of doing that now and simplifying and moving from managed funds to low cost funds. I guess you could say that I am paying for my complacency, laziness, and ignorance. Now I see that it would be to my advantage to consolidate those IRAs into my 401k. I am at a point in my life where my non-discretionary spending has decreased freeing up more to go towards retirement accounts. With retirement somewhat visible on the horizon it is time to get more serious and play a little catch up. It is very encouraging that I can use the mega backdoor Roth.

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Mon Mar 30, 2020 4:39 pm

Spirit Rider wrote:
Sun Mar 29, 2020 7:50 am
justsomeguy2018 wrote:
Sun Mar 29, 2020 12:19 am
iljets10 wrote:
Sat Mar 28, 2020 5:58 pm
I have a Fidelity 401k and it varies by plan. For us, we had to call once and then they will automatically detect any after tax contributions and convert them into Roth 401k overnight.

Can’t beat that!
I've never heard of this - they take your after-tax 401k contributions and automatically roll them into the Roth portion of your 401k? That's incredible, I am surprised it is legal. That is basically like allowing an addtional $36k in Roth contributions a year.

Anyone else have any insights into this practice?
It is becoming quite common in plans that support both employee after-tax contributions and an in-plan Roth rollover (IRR).

This in compliance with applicable sections of the Internal Revenue Code, IRS rules and regulations.

It is fundamentally no different than a Backdoor Roth, except the IRS has explicitly provided it with "substantial authority".
Here is the language in my plan SPD:

Roth In-Plan Rollover Distribution
You may convert eligible before-tax and after-tax money to Roth after-tax money within the plan using the Roth In-Plan Rollover feature. Converting to a Roth is not right for everyone, as it depends on your individual circumstances, including your current and estimated future tax rates. An election to convert eligible money to Roth after-tax money within the plan is irrevocable and cannot be undone even if the value of the Roth account falls after the Roth In-Plan Rollover. We recommend that you consult with a tax adviser before taking any action.

Does this mean I can do after tax contributions, convert them to Roth in-plan, then pay zero taxes on it (akin to a backdoor Roth)? How do I do this? I am currently putting 10% (66%) in as a Roth (ugh) but if I had known about this I would have done 100% tax deferred and put the tax savings in as after tax contribution and converted to Roth. Does that sound like a good plan? Am I missing anything?

retiredjg
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by retiredjg » Mon Mar 30, 2020 4:49 pm

justsomeguy2018 wrote:
Mon Mar 30, 2020 4:39 pm
Does this mean I can do after tax contributions, convert them to Roth in-plan, then pay zero taxes on it (akin to a backdoor Roth)?
It might mean exactly that. It depends on what happens between the contribution and the Roth conversion. If the after-tax account grows before you can do the in-plan rollover, you will pay taxes on that growth.

How plans varies widely. Some plans allow you to do it once or twice a year. Some will do the rollover every payday before any earnings can accrue. What does your plan say?


I am currently putting 10% (66%) in as a Roth (ugh) but if I had known about this I would have done 100% tax deferred and put the tax savings in as after tax contribution and converted to Roth. Does that sound like a good plan? Am I missing anything?
It is certainly not a bad plan. :happy And it probably is a good plan. Whether it is the best plan for you depends on things we don't know.

bloom2708
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by bloom2708 » Mon Mar 30, 2020 4:54 pm

csh wrote:
Sat Mar 28, 2020 6:21 pm
Thanks all! This information is so helpful. :beer <--Cheers

I guess it is a good thing that I setup my Roth with Fidelity then. I do have a Vanguard account that I used to do an IRA rollover from a high fee account to a low fee account and I almost setup the Roth there. Monday morning I will call Fidelity to see if I can get my 2019 spillover contributions moved to my Roth if there is anybody there to answer the phone during this crisis. It's not that much money, but will be worth it to find out how to do it when there is more money on the line. After that I will have to wait for a couple of paychecks to come in before deciding how much extra I can put towards my 401k contributions. Between an upcoming pay raise + W4 adjustment (paid way too much taxes) + added catch up contributions my paycheck is in a state of flux.
You do not need to have your Roth IRA at Fidelity. Just leave the dollars in your 401k. They are now "Roth 401k" dollars. Post-Tax to Roth 401k.

Let them grow in the 401k. When you leave or retire, move it to a Traditional Rollover IRA and your Roth IRA. The pre-tax and Roth dollars in the 401k are split. No need to move it to your Roth IRA too.
"We are here to provoke thoughtfulness, not agree with you." Unknown Boglehead

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Mon Mar 30, 2020 5:09 pm

retiredjg wrote:
Mon Mar 30, 2020 4:49 pm
justsomeguy2018 wrote:
Mon Mar 30, 2020 4:39 pm
Does this mean I can do after tax contributions, convert them to Roth in-plan, then pay zero taxes on it (akin to a backdoor Roth)?
It might mean exactly that. It depends on what happens between the contribution and the Roth conversion. If the after-tax account grows before you can do the in-plan rollover, you will pay taxes on that growth.

How plans varies widely. Some plans allow you to do it once or twice a year. Some will do the rollover every payday before any earnings can accrue. What does your plan say?
How can I found out if I can do an immediate conversion vs a 1x or 2x a year conversion? Where would I find that in the spd? From the part I specifically quoted, it did not appear to give a frequency.

retiredjg
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by retiredjg » Mon Mar 30, 2020 5:13 pm

If there is no information in writing, you will have to ask them. I feel sure if there is a limit it would be listed.

Topic Author
csh
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by csh » Thu Apr 02, 2020 6:01 pm

Called Fidelity yesterday and now I am all setup for my mega backdoor Roth. What we did is do an in plan rollover which just converts the after tax amounts over to Roth inside the 401k savings plan. I am also setup to do the automatic conversion once the after tax contributions are made to my account like iljets10 mentioned earlier. With that setup I only have to worry about the taxable gains for one day since the contribution is converted at the close of that day. If I wanted to roll that out to my existing Roth, I would have been limited to doing that once every 6 months. Now to determine how much I can contribute after tax.

lakpr
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by lakpr » Thu Apr 02, 2020 6:22 pm

csh wrote:
Thu Apr 02, 2020 6:01 pm
Called Fidelity yesterday and now I am all setup for my mega backdoor Roth. What we did is do an in plan rollover which just converts the after tax amounts over to Roth inside the 401k savings plan. I am also setup to do the automatic conversion once the after tax contributions are made to my account like iljets10 mentioned earlier. With that setup I only have to worry about the taxable gains for one day since the contribution is converted at the close of that day. If I wanted to roll that out to my existing Roth, I would have been limited to doing that once every 6 months. Now to determine how much I can contribute after tax.
Congratulations! On that last sentence that I set in bold and underline: always shoot to be below the max threshold by a few hundred dollars. There's another thread here where the employer true-up match pushed the person over the $57k limit for 2019, and it's a real mess to unwind now. Perhaps pretend that limit is only $56k ...

MathIsMyWayr
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by MathIsMyWayr » Thu Apr 02, 2020 6:41 pm

lakpr wrote:
Thu Apr 02, 2020 6:22 pm
csh wrote:
Thu Apr 02, 2020 6:01 pm
Called Fidelity yesterday and now I am all setup for my mega backdoor Roth. What we did is do an in plan rollover which just converts the after tax amounts over to Roth inside the 401k savings plan. I am also setup to do the automatic conversion once the after tax contributions are made to my account like iljets10 mentioned earlier. With that setup I only have to worry about the taxable gains for one day since the contribution is converted at the close of that day. If I wanted to roll that out to my existing Roth, I would have been limited to doing that once every 6 months. Now to determine how much I can contribute after tax.
Congratulations! On that last sentence that I set in bold and underline: always shoot to be below the max threshold by a few hundred dollars. There's another thread here where the employer true-up match pushed the person over the $57k limit for 2019, and it's a real mess to unwind now. Perhaps pretend that limit is only $56k ...
My company's plan also has an automatic IRR to Roth. One thing I have to watch out is to leave enough room for the annual employer matching. Once the sum (19.5k + match + after-tax) hits the $57k annual IRS limit, there is no room for future employer match to go in and match stops. I arrive at the annual total after-tax contribution by subtracting 19.5K and the estimated full year employer match from $57k.

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Fri Apr 03, 2020 9:53 pm

retiredjg wrote:
Mon Mar 30, 2020 5:13 pm
If there is no information in writing, you will have to ask them. I feel sure if there is a limit it would be listed.
So I learned there is no limit to the rollovers, but to get it done we have to call on the day of the contribution (or day after) and ask them to the in-plan rollover. Kind of a pain but potentially manageable.

So assuming this can be done, do people agree it makes more sense to do this than putting excess cash flow in a taxable account? I wish I had know about this option earlier. :oops:

The only thing that kind of stinks is I am hesitant to put excess cash flow into a retirement account right now given talk of a 35% unemployment rate. Emergency Fund is healthy (~20+ months) but who knows how long this pandemic/recession/depression may end up lasting.

lakpr
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by lakpr » Fri Apr 03, 2020 10:14 pm

justsomeguy2018 wrote:
Fri Apr 03, 2020 9:53 pm
The only thing that kind of stinks is I am hesitant to put excess cash flow into a retirement account right now given talk of a 35% unemployment rate. Emergency Fund is healthy (~20+ months) but who knows how long this pandemic/recession/depression may end up lasting.
In the same boat. I have a job as of today but I am not sure I will if this lockdown drags beyond May.

No company on earth can affiord to keep employees on payroll if their revenues take a 80% drop in the space of 2 months. I am almost expecting a layoff by June, praying that it would not come to that. I have even stopped 401k contributions (no loss of employer match since our company does a true up). I am redirecting all excess cashflow to a savings account right now and started penny pinching.

I wrote this in another post too. I do have 6 months of emergency fund. But it suddenly seems inadequate. Feels like I should have at least another year worth to sleep well at night. That is an additional $60k. It is as if I found myself suddenly in $60k debt overnight due to the current crisis, only that debt is one owed to myself.

If I come to this board and say, "Gentlemen and Ladies, I am in debt for $60k, but I do have excess cashflow after meeting my monthly needs I have $2000 per month, should I invest this in a 401k plan or pay off my debt", I will be told, I am sure, by this board members unanimously I should pay off debt first. Which is exactly what I am doing.

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Fri Apr 03, 2020 10:25 pm

lakpr wrote:
Fri Apr 03, 2020 10:14 pm
justsomeguy2018 wrote:
Fri Apr 03, 2020 9:53 pm
The only thing that kind of stinks is I am hesitant to put excess cash flow into a retirement account right now given talk of a 35% unemployment rate. Emergency Fund is healthy (~20+ months) but who knows how long this pandemic/recession/depression may end up lasting.
In the same boat. I have a job as of today but I am not sure I will if this lockdown drags beyond May.

No company on earth can affiord to keep employees on payroll if their revenues take a 80% drop in the space of 2 months. I am almost expecting a layoff by June, praying that it would not come to that. I have even stopped 401k contributions (no loss of employer match since our company does a true up). I am redirecting all excess cashflow to a savings account right now and started penny pinching.

I wrote this in another post too. I do have 6 months of emergency fund. But it suddenly seems inadequate. Feels like I should have at least another year worth to sleep well at night. That is an additional $60k. It is as if I found myself suddenly in $60k debt overnight due to the current crisis, only that debt is one owed to myself.

If I come to this board and say, "Gentlemen and Ladies, I am in debt for $60k, but I do have excess cashflow after meeting my monthly needs I have $2000 per month, should I invest this in a 401k plan or pay off my debt", I will be told, I am sure, by this board members unanimously I should pay off debt first. Which is exactly what I am doing.
I understand the anxiety. I am feeling it too.

My thoughts are:

(1) with a layoff hopefully unemployment insurance/payments will take care of some of your short term needs (though probably not all)

(2) some may disagree with this but I just added an 18-month 0% APR credit card with $25k credit limit that I plan to pay the minimum monthly payment on, treating it almost like an interest free loan - I did this before a potential job loss as I imagine it would be harder to qualify once unemployed.

(3) Fortunately my wife and I make around the same amount of money (and it is almost enough to cover our monthly expenses) so that will help cushion a blow should either of us lose our job. Should we both lose our jobs that will be tougher.

(4) It's less than ideal but worst case scenario is try and find a job as an "essential employee" if it comes to that??
Last edited by justsomeguy2018 on Fri Apr 03, 2020 10:31 pm, edited 2 times in total.

justsomeguy2018
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Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Fri Apr 03, 2020 10:31 pm

justsomeguy2018 wrote:
Fri Apr 03, 2020 9:53 pm
retiredjg wrote:
Mon Mar 30, 2020 5:13 pm
If there is no information in writing, you will have to ask them. I feel sure if there is a limit it would be listed.
So I learned there is no limit to the rollovers, but to get it done we have to call on the day of the contribution (or day after) and ask them to the in-plan rollover. Kind of a pain but potentially manageable.

So assuming this can be done, do people agree it makes more sense to do this than putting excess cash flow in a taxable account? I wish I had know about this option earlier. :oops:

The only thing that kind of stinks is I am hesitant to put excess cash flow into a retirement account right now given talk of a 35% unemployment rate. Emergency Fund is healthy (~20+ months) but who knows how long this pandemic/recession/depression may end up lasting.
One last question as I reply to myself -

Right now 5% goes into tax deferred and 10% in to Roth portion (I contribute 15%).

Thinking about this I think my strategy should be to put the entire $19.5k in tax deferred, and use the tax savings from this to put into the after-tax portion and convert to Roth.

Make sense?

retiredjg
Posts: 40868
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401k After Tax Contribitions and Taxable Accounts

Post by retiredjg » Sat Apr 04, 2020 6:41 am

justsomeguy2018 wrote:
Fri Apr 03, 2020 9:53 pm
So assuming this can be done, do people agree it makes more sense to do this than putting excess cash flow in a taxable account?
Roth is always a better choice than taxable for long term money. If you feel your short term reserves are inadequate, that might make a difference.

justsomeguy2018
Posts: 1120
Joined: Wed Oct 03, 2018 8:11 pm

Re: 401k After Tax Contribitions and Taxable Accounts

Post by justsomeguy2018 » Sat Apr 04, 2020 9:29 am

retiredjg wrote:
Sat Apr 04, 2020 6:41 am
justsomeguy2018 wrote:
Fri Apr 03, 2020 9:53 pm
So assuming this can be done, do people agree it makes more sense to do this than putting excess cash flow in a taxable account?
Roth is always a better choice than taxable for long term money. If you feel your short term reserves are inadequate, that might make a difference.
Thanks - not sure if you saw my post above, does it make sense to shift all my contributions to tax deferred and use the tax savings to do after-tax --> Roth? Top marginal rate is 24.9%.

retiredjg
Posts: 40868
Joined: Thu Jan 10, 2008 12:56 pm

Re: 401k After Tax Contributions and Taxable Accounts

Post by retiredjg » Sat Apr 04, 2020 9:34 am

Yes, that makes sense to me.

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