HCE - Megaback door - Roth in plan conv now with after tax losses?

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codedude
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Joined: Thu Jan 26, 2017 9:15 pm

HCE - Megaback door - Roth in plan conv now with after tax losses?

Post by codedude »

Hello bogleheads,

I have a 401k with mega back door Roth opportunity available (both in plan Roth conversions and in service withdrawals twice a year).
I am a HCE for 2019.

2019: Non safe harbor plan.
2020: Safe harbor plan because employer increased match to safe harbor level.

My after tax contributions in the 401k account for both 2019 and 2020 are below cost basis by about 10%.

The 2019 ADP test was completed before 4/15 and some pre-tax contributions refunded. The 2019 ACP test has not yet been done according to the plan administrator.

If I convert my 2019 and 2020 after tax contributions to Roth using the in plan conversion method in the 401k, my understanding is there would be no tax due because the current value of the after tax sub account in the 401k is less than the cost basis. Is this correct?

If this is true, then wouldn't this be a good time to do an in plan conversion?

If the plan fails the 2019 ACP test after the in plan Roth conversion, how difficult would it be roll it back? Would the plan administrator issue a 1099 for the excess contributions in the Roth sub account in the 401k account?

Thanks in advance for reviewing this post. Please let me know if any further details are needed to properly evaluate the question.
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