after-tax 403B contributions

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acc5180
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Joined: Mon Jun 03, 2019 12:25 am

after-tax 403B contributions

Post by acc5180 » Mon Jun 03, 2019 12:33 am

I have the option to contribute to 403B and 457B through my work plans. I work for a large university, so I trust the 457B (i.e. they won't go bankrupt). I'm currently contributing the $19,000 to 403B, $19,000 to 457B, and $6,000 via backdoor Roth IRA. Employer matches 10% to 403B. The 403B plan also allows for after-tax contributions and in-service distributions.

I was thinking about maxing out the 403B plan to $56,000 with after-tax money and then taking that portion to rollover to a Roth IRA (i.e. mega backdoor route) each year. Am I allowed to do this (i.e. contribute the difference of $56,000 - $19,000 (pre-tax contribution) - employer match)? And if so, any reason not to do this?

Spirit Rider
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Re: after-tax 403B contributions

Post by Spirit Rider » Mon Jun 03, 2019 6:48 am

Yes, you are allowed to do this. However, the plan may limit employee after-tax contributions to a percentage of compensation or fixed dollar amount. If you are an HCE the plan may fail ACP testing, requiring the return of excess employee after-tax contributions and earnings.

Generally, there is no reason not to do this if you have the money to do so. However, there may be better uses for the money. Paying off high interest debt, maxing HSA contributions, making "deductible" 529 contributions, etc...

retiredjg
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Re: after-tax 403B contributions

Post by retiredjg » Mon Jun 03, 2019 7:38 am

I think you should do that....unless you can make Roth contributions to either the 403b or 457b. That would accomplish the same thing and be a little easier.

I think putting $19k into two different tax-deferred plans plus a large employer match is likely to be too much in tax-deferral for a person who seems likely to have a pension.

Topic Author
acc5180
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Re: after-tax 403B contributions

Post by acc5180 » Wed Jun 12, 2019 7:28 pm

retiredjg wrote:
Mon Jun 03, 2019 7:38 am
I think you should do that....unless you can make Roth contributions to either the 403b or 457b. That would accomplish the same thing and be a little easier.

I think putting $19k into two different tax-deferred plans plus a large employer match is likely to be too much in tax-deferral for a person who seems likely to have a pension.
The hospital just announced they are going to start having the option for Roth contributions in the 403b and also allow in-plan conversion from after-tax to Roth. So essentially if I contribute $19,000 pre-tax and employer will match $19,000, then I can put in $18,000 post-tax. Then as soon as it goes in, I'll do an in-plan conversion to the Roth 403b. Is that how it works?

Additionally, if I do this, can I still do the $6,000 backdoor Roth contribution to my existing Roth IRA account?

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StormShadow
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Re: after-tax 403B contributions

Post by StormShadow » Wed Jun 12, 2019 7:32 pm

acc5180 wrote:
Wed Jun 12, 2019 7:28 pm
retiredjg wrote:
Mon Jun 03, 2019 7:38 am
I think you should do that....unless you can make Roth contributions to either the 403b or 457b. That would accomplish the same thing and be a little easier.

I think putting $19k into two different tax-deferred plans plus a large employer match is likely to be too much in tax-deferral for a person who seems likely to have a pension.
The hospital just announced they are going to start having the option for Roth contributions in the 403b and also allow in-plan conversion from after-tax to Roth. So essentially if I contribute $19,000 pre-tax and employer will match $19,000, then I can put in $18,000 post-tax. Then as soon as it goes in, I'll do an in-plan conversion to the Roth 403b. Is that how it works?

Additionally, if I do this, can I still do the $6,000 backdoor Roth contribution to my existing Roth IRA account?
Are you a physician? If so, why not contribute to pre-tax since I can’t imagine your tax rate is going to be higher in retirement.

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Earl Lemongrab
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Re: after-tax 403B contributions

Post by Earl Lemongrab » Wed Jun 12, 2019 8:34 pm

StormShadow wrote:
Wed Jun 12, 2019 7:32 pm
acc5180 wrote:
Wed Jun 12, 2019 7:28 pm
The hospital just announced they are going to start having the option for Roth contributions in the 403b and also allow in-plan conversion from after-tax to Roth. So essentially if I contribute $19,000 pre-tax and employer will match $19,000, then I can put in $18,000 post-tax. Then as soon as it goes in, I'll do an in-plan conversion to the Roth 403b. Is that how it works?
Are you a physician? If so, why not contribute to pre-tax since I can’t imagine your tax rate is going to be higher in retirement.
I don't think you understood the OP. The plan is max out pretax and then add more to after-tax, which would be converted to Roth.
Play Gloria!

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Earl Lemongrab
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Re: after-tax 403B contributions

Post by Earl Lemongrab » Wed Jun 12, 2019 8:35 pm

acc5180 wrote:
Wed Jun 12, 2019 7:28 pm
Additionally, if I do this, can I still do the $6,000 backdoor Roth contribution to my existing Roth IRA account?
Yes. The limits are unrelated.
Play Gloria!

ofckrupke
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Re: after-tax 403B contributions

Post by ofckrupke » Wed Jun 12, 2019 9:17 pm

acc5180 wrote:
Wed Jun 12, 2019 7:28 pm
The hospital just announced they are going to start having the option for Roth contributions in the 403b and also allow in-plan conversion from after-tax to Roth.
Right...though missing an outright nudge or wink, this thing (Roth sleeve plus in-plan,in-service rollover) that begins next January has been announced in early June to give those most likely to partake plenty of runway to bulk up on after-tax contributions in 2018 for an early January 2019 internal Roth rollover.

retiredjg
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Re: after-tax 403B contributions

Post by retiredjg » Thu Jun 13, 2019 6:44 am

acc5180 wrote:
Wed Jun 12, 2019 7:28 pm
retiredjg wrote:
Mon Jun 03, 2019 7:38 am
I think you should do that....unless you can make Roth contributions to either the 403b or 457b. That would accomplish the same thing and be a little easier.

I think putting $19k into two different tax-deferred plans plus a large employer match is likely to be too much in tax-deferral for a person who seems likely to have a pension.
The hospital just announced they are going to start having the option for Roth contributions in the 403b and also allow in-plan conversion from after-tax to Roth. So essentially if I contribute $19,000 pre-tax and employer will match $19,000, then I can put in $18,000 post-tax. Then as soon as it goes in, I'll do an in-plan conversion to the Roth 403b. Is that how it works?
That is essentially how it works. Another option might be to roll the after-tax account out to Roth IRA although not all plans offer both option.


However, 100% match for your entire contribution would be unusual. So unusual that it seems unlikely so you might want to check on that.

Additionally, if I do this, can I still do the $6,000 backdoor Roth contribution to my existing Roth IRA account?
Yes. The limits are unrelated.

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