Mega Backdoor Roth at Fidelity - general questions + no automatic option

[Greg_Boston]

I decided to start doing Mega Backdoor Roth this year (I’m already maxing employee portion of 401k, HSA and Backdoor Roth IRA). I called Fidelity and confirmed that my 401k plan allows after-tax contributions, as well as both in-service after tax withdrawal and in-Plan Roth Rollover. The only thing that’s missing is automated withdrawals/rollovers, so it looks like I will have to call in every paycheck. I guess I doesn’t have to be done every paycheck, but then my understanding is I’d have to pay ordinary income tax on potential earnings.

I haven’t decided if I should move money to my Roth IRA or keep it within the plan by rolling over to Roth IRA. If I move it to Roth IRA my plan was to buy FZROX, and if I leave it at 401k then I’d be buying VSTAX Institutional Plus Shares (0.02% expense ratio). There are no other 401k fees. Fidelity customer service representative said that there is no operational difference regardless which option I choose. I read that 401k plans have better creditor protections.

What would you advise to do in my situation, IRA withdrawal or 401k rollover? Does anyone have experience with Fidelity Mega Backdoor Roth without automatic option? Is it a big nuisance to call them?

I’m 32, my wife is 34 and we most likely plan to retire in our late forties or early fifties. The plan is to have a bridge account (joint brokerage account) for first 15-20 years of retirement funded by them. We also plan to max out HSA until then (and save down medical receipts for later reimbursement). Given this we shouldn’t need to touch Mega Backdoor Roth portion of 401k/Roth IRA until we are in our sixties or later.

I’d be very grateful for any response! Please feel free to question my understanding, it’d be my first year of doing it and I might be missing some important details.

[surfer05]

Not an expert, so can't advice on what's best to do. But I went through the same thing and what I found out was Fidelity does offer in-plan conversion to Roth, which is automatic(after you setup once with support).

[whodidntante]

Welcome.

I'd call in like I own the place and ask them to setup daily automatic conversions to Roth. Sometimes you just have to strut.

If you like the plan options I'd probably convert a few times a year, assuming that strutting did not work.
If you would invest otherwise if the money were in an IRA, rollover to an IRA now and then.

Most states protect IRA assets from creditors. If possible, don't get sued in one that doesn't.

[Longdog]

I decided to start doing Mega Backdoor Roth this year (I’m already maxing employee portion of 401k, HSA and Backdoor Roth IRA). I called Fidelity and confirmed that my 401k plan allows after-tax contributions, as well as both in-service after tax withdrawal and in-Plan Roth Rollover. The only thing that’s missing is automated withdrawals/rollovers, so it looks like I will have to call in every paycheck. I guess I doesn’t have to be done every paycheck, but then my understanding is I’d have to pay ordinary income tax on potential earnings.

I haven’t decided if I should move money to my Roth IRA or keep it within the plan by rolling over to Roth IRA. If I move it to Roth IRA my plan was to buy FZROX, and if I leave it at 401k then I’d be buying VSTAX Institutional Plus Shares (0.02% expense ratio). There are no other 401k fees. Fidelity customer service representative said that there is no operational difference regardless which option I choose. I read that 401k plans have better creditor protections.

What would you advise to do in my situation, IRA withdrawal or 401k rollover? Does anyone have experience with Fidelity Mega Backdoor Roth without automatic option? Is it a big nuisance to call them?

I’m 32, my wife is 34 and we most likely plan to retire in our late forties or early fifties. The plan is to have a bridge account (joint brokerage account) for first 15-20 years of retirement funded by them. We also plan to max out HSA until then (and save down medical receipts for later reimbursement). Given this we shouldn’t need to touch Mega Backdoor Roth portion of 401k/Roth IRA until we are in our sixties or later.

I’d be very grateful for any response! Please feel free to question my understanding, it’d be my first year of doing it and I might be missing some important details.

I have experience with the Fidelity process, which i was able to take advantage of for a couple of years prior to my retirement. I opted to roll the after tax contributions to Fidelity Roth IRA. The primary reason for doing that, versus maintaining it in 401k space, was because I was able to individually select investments independently of what was going on in the 401k. Had I kept the funds within the 401k space, I would have had to allocate the investments in the Roth 401k the same as in the pre-tax 401k. The phone calls to Fidelity were not a big nuisance, though they always took longer than they needed to (about 15 minutes each time) because of all the compliance questions they need to ask EVERY TIME to verify you understand the tax consequences of the rollover (which are minimal). I front loaded my mega backdoor Roth contributions early in the year for that reason, reducing the number of phone calls. My process was to contribute to the Stable Value fund in the 401k, and as soon as it showed up in the account I'd call Fidelity and initiate the rollover to the Roth IRA, which occurred overnight. That kept earnings to an inconsequential amount - at most one days worth of interest.

[icemule1]

It's been about a year since you posted this, how has your experience been? Curious if you could provide an update as I'm going to do the same thing you're doing soon and it looks like my plan doesn't support automatic conversions either.

[GratefulDad]

I did the process for the first time this year. Like yours my plan does not do automatic conversion, I have to call.

The day I see the after tax contribution I call fidelity. At the prompt I say “in plan conversion”. By doing that it takes me right to a licensed agent who can do the conversion or the withdrawal to Ira.

The first time I did the in plan conversion but after that I just did the rollover to my Fidelity Roth IRA. The next day it was in my Roth and I bought FZROX. Either is fine, not too much difference. In plan keeps the money invested so no time out of market but IRA is more flexible as far as investments and the investments are not commingled with pre-tax. In plan conversion tracks the basis for you, with withdrawal you have to track basis. But Roth IRA is more favorable for withdrawal. Either way it’s tax free earnings and that’s the goal that trumps whatever decision is made. It doesn’t matter, just do it right away to minimize possibility for earnings.

I timed it last time, it took 5 minutes 38 seconds. It’s comical how easy it is.

Best of luck.