Administrative fee as loss in the after-tax account?

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Topic Author
john1984
Posts: 19
Joined: Tue Aug 04, 2020 1:37 pm

Administrative fee as loss in the after-tax account?

Post by john1984 »

Hi Bogleheads,

I have a question about the administrative fee in my after-tax 401k.

I just completed this month's mega backdoor Roth. There was an administrative fee for the plan, and it was automatically deducted from the after-tax account. The fidelity app showed a contribution of 2500 into the after-tax account, and a 2.09 management fee, leaving the balance 2497.91.

I rolled the remaining balance 2497.91 to my Roth IRA. My Roth IRA accounting, as I understand, should be
- taxable amount: -2.09 (loss)
- non-taxable amount: 2500

If there are earnings in the after-tax account to be rolled over in Roth IRA the future, it will first erode the 2.09 loss.

The fidelity distribution statement I received today however showed
- Total Distribution 2497.91
- Return of After-Tax Contribution 2497.91
It is the same as if the 2.09 loss has been taken into account.

So is my Roth IRA accounting this month actually
- taxable amount: 0
- non-taxable basis: 2497.91

Thanks.

John
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David Jay
Posts: 10021
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Administrative fee as loss in the after-tax account?

Post by David Jay »

There is really no such thing as a "loss" inside a Roth IRA. You can't offset anything with a loss inside a Roth.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
john1984
Posts: 19
Joined: Tue Aug 04, 2020 1:37 pm

Re: Administrative fee as loss in the after-tax account?

Post by john1984 »

Thanks.

I have thought about it again. Here is my current understanding.

My after-tax 401k had
- basis 2500
- earning -2.09
before the rollover.

The rollover to Roth IRA is just 2497.91 non-taxable. The loss is not carried over to Roth IRA.

After the rollover my after-tax 401k has
- basis 2.09
- earning -2.09
Future positive earnings in the after-tax 401k will compensate the 2.09 loss first.

John
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arcticpineapplecorp.
Posts: 7117
Joined: Tue Mar 06, 2012 9:22 pm

Re: Administrative fee as loss in the after-tax account?

Post by arcticpineapplecorp. »

i don't think there's a basis in a Roth. Nor a 401k.

when my 457b subtracts fees I don't really account for that. It's the total balance that matters. The account grows by more than the fees. I'm not keeping track on a granular level. Are you?
It's "Stay" the course, not Stray the Course. Buy and Hold works. You should really try it sometime. Get a plan: www.bogleheads.org/wiki/Investment_policy_statement
Topic Author
john1984
Posts: 19
Joined: Tue Aug 04, 2020 1:37 pm

Re: Administrative fee as loss in the after-tax account?

Post by john1984 »

I think there is basis in Roth IRA and after-tax 401k.
I view after-tax 401k as "a non-deductible IRA" in 401k. The basis is the after-tax money deposited in. Basis will not be taxed again when taken out. Earnings may incur 10% penalty. The basis in the Roth IRA are the after-tax money deposited in and the conversions from traditional IRA/pre-tax 401k.

This is the terminology used in Form 8606:
Line 22: Enter your basis in Roth IRA contributions (see instructions)
Line 24: Enter your basis in conversions from traditional, SEP, and SIMPLE IRAs and rollovers from qualified retirement plans to a Roth IRA.
I keep track of the fees, because the earnings in after-tax 401k are taxable when rolled over to Roth IRA.
And when taken out within 5 years, there is a 10% penalty. They have to be separately recorded.

I wish I get it correct and yet I keep track on granular level.

John
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