Am I able to do a Mega Backdoor ROTH?

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s0me0nesmind1
Posts: 140
Joined: Mon Aug 05, 2013 3:15 pm

Am I able to do a Mega Backdoor ROTH?

Post by s0me0nesmind1 » Fri Apr 12, 2019 8:03 am

Hey Bogleheads -

Recently signed a new job with a new employer. Looking into our benefits, we have 401k options with Voya.

So right off the bat - I see in our investment options that we have After-tax contributions. Great. That is half of the battle. To my understanding, in order to do a Mega Backdoor ROTH I need:
1) Ability to do After Tax contributions
2) A plan that allows in-plan Roth conversions or in-service withdrawals.

#2 is where it gets tricky - I saw in the Plan Highlight section a terms for "In-Plan ROTH Conversions" so I immediately got excited.
You can take the vested portion of your Plan account (other than existing Roth and after-tax contributions) and convert your pre-tax balances to Roth through an in-plan Roth conversion. The minimum amount you can convert is $1,000 and you are limited to two conversions in any Plan Year. IRS rules allow you to make in-plan Roth conversions regardless of withdrawal or distribution rights. They do not, however, allow you to convert required minimum distributions.

To request an in-plan Roth conversion, you must:
Complete the In-Plan Roth Conversion Request Form found in Forms
Taxes will not be withheld from your in-plan Roth conversion. When converting balances, you will need to identify other income sources to pay the tax. If you make an in-plan Roth conversion, you may need to increase your federal income tax withholding or make estimated tax payments to avoid an "underpayment of tax" penalty. You will need to determine if payments will be due to the IRS and make appropriate arrangements.

If you elect an in-plan Roth conversion, you will receive an IRS Form 1099-R reporting the amount converted as taxable income in that calendar year.

The in-plan Roth conversion feature is available to active and terminated participants. In addition, this feature is available for a former spouse that is an alternate payee under a Qualified Domestic Relations Order (QDRO) or to your surviving Spouse, if you die and your Spouse is your beneficiary under Plan rules. Due to legal restrictions, this feature is not available to non-spouse beneficiaries.

As with any Plan decision you make, the Company cannot provide you with tax advice. You are encouraged to speak with a qualified tax advisor before electing an in-plan Roth conversion as such elections cannot be undone once made.
See the bolded/underlined - Looks like it's only available for traditional (before tax) contributions :( If someone here interprets that differently please let me know.



So how about an in-service withdrawal? Next I see in the plan features a section titled "Withdrawal Options While Employed with the Company" perhaps there is something there...
There are several types of in-service withdrawals available through the Plan: Age 59½, traditional after-tax, Rollover Contribution, and Hardship (see details of each below). You can obtain available amounts for any of these withdrawals through your Account or by calling the Services Center at ###. If you want to learn more about withdrawals, visit “Getting Your Money” in the “Retirement” section of Education & Tools.
Age 59½ Withdrawals* can be taken from your before-tax and/or Roth 401(k) money and the vested portion of your Company matching contribution, if you are age 59½ or older. No forms are required.
Traditional After-tax Withdrawals* can be taken from your traditional after-tax money sources. No forms are required.
Rollover Withdrawals* can be taken from your before-tax and/or Roth rollover account. No forms are required.
Qualified Reservist Distributions* can be taken from your before-tax contributions.
Hardship Withdrawals** may be available for these reasons:
Expenses for unreimbursed medical expenses for participant, spouse, child, dependents or designated beneficiary;
Costs related to the purchase or construction of your primary residence (excluding mortgage payments);
Education/tuition payments for the next 12 months of post-secondary educations for you, your spouse, your children, your dependents or designated beneficiary;
Payment of amounts necessary to prevent eviction or foreclosure of a mortgage on your primary residence;
Funeral expenses for your deceased parent, spouse, child, dependents or designated beneficiary;
Certain expenses related to the repair of damage to your primary residence (such as hurricane or flood damage).
For hardship withdrawals processed on or before December 31, 2018, you cannot contribute to the Plan for a period of six (6) months. Your contributions will automatically be reinstated after the 6-month suspension period ends at the rate in effect immediately before such suspension began, including any automatic increase that would otherwise have gone into effect but for the suspension period.

For hardship withdrawal requests processed on or after January 1, 2019, you will no longer be required to obtain a Plan loan prior to requesting a hardship withdrawal, and your contributions will not be suspended following your hardship distribution unless you make an affirmative election to do so.

*Withdrawals from the Plan may be subject to 20% federal tax withholding and, if you are less than age 59½, a 10% early withdrawal penalty will apply. Ordinary income taxes may apply as well.

See the bold/underlined. It looks like I can withdraw the after-tax funds while still employed. But is it simply considered a withdrawal? Or can I then take that withdrawal check and deposit it into my ROTH IRA with Vanguard?

Any advice is greatly appreciated. While I also plan to call Voya and ask them, I hope to be better armed with the advice here and know the right questions to ask.

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David Jay
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Re: Am I able to do a Mega Backdoor ROTH?

Post by David Jay » Fri Apr 12, 2019 9:45 am

If you discuss with Your company admin or Voya, do not use the term “Mega-backdoor”, that is a BH term.

You want to know if you can do a rollover of the Roth portion of your 401K into your personal Roth account.
Last edited by David Jay on Fri Apr 12, 2019 9:49 am, edited 1 time in total.
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Topic Author
s0me0nesmind1
Posts: 140
Joined: Mon Aug 05, 2013 3:15 pm

Re: Am I able to do a Mega Backdoor ROTH?

Post by s0me0nesmind1 » Fri Apr 12, 2019 9:49 am

David Jay wrote:
Fri Apr 12, 2019 9:45 am
If you discuss with Your company admin or Voya, do not use the term “Mega-backdoor”, that is a BH term.

You want to know if you can do a rollover of the Roth portion of your 401K.
Rollover of the ROTH portion? Wouldn't it be a roll-over of the after-tax portion?

My understanding is both Traditional and ROTH 401k Contributions are limited to the $19k limit, while the after-tax portion isn't (until ~$53k or so)

CoastalWinds
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Re: Am I able to do a Mega Backdoor ROTH?

Post by CoastalWinds » Fri Apr 12, 2019 9:57 am

Following. I’m in a similar situation (with respect to wording in my 401k plan).

Spirit Rider
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Re: Am I able to do a Mega Backdoor ROTH?

Post by Spirit Rider » Fri Apr 12, 2019 12:19 pm

s0me0nesmind1 wrote:
Fri Apr 12, 2019 9:49 am
David Jay wrote:
Fri Apr 12, 2019 9:45 am
If you discuss with Your company admin or Voya, do not use the term “Mega-backdoor”, that is a BH term.

You want to know if you can do a rollover of the Roth portion of your 401K.
Rollover of the ROTH portion? Wouldn't it be a roll-over of the after-tax portion?

My understanding is both Traditional and ROTH 401k Contributions are limited to the $19k limit, while the after-tax portion isn't (until ~$53k or so)
Generally, you are only rolling over employee after-tax contributions and pre-tax earnings in the after-tax account.

However, if your plan supports in-plan Roth rollovers IRR of the after-tax account and in-service rollovers of the same, you could be rolling over "only" the separately accounted for previous IRRs of the employee after-tax account from the designated Roth account.

Topic Author
s0me0nesmind1
Posts: 140
Joined: Mon Aug 05, 2013 3:15 pm

Re: Am I able to do a Mega Backdoor ROTH?

Post by s0me0nesmind1 » Mon Apr 15, 2019 4:36 pm

Bump for an update:

I'm not the most qualified to ask the "appropriate" questions. But I called my 401k provider today (Voya) and I asked the question:

"Can I rollover my after-tax 401k contributions while still employed?" - This seemed like the appropriate question to ask - BH feel free to correct me if I'm wrong there.

The answer was "Yes" - I can apparently do an in-service (which I take to mean "while still employed") withdrawal of after-tax contributions. Note though: I followed up that with the question of "Does a withdrawal mean the same as a rollover?" and I was told yes, it can be a rollover as well.

So now I must ask BH - did my question/answer to my 401k provider tell me all I need? Or do I need to ask any follow-up questions just to make sure? Otherwise I'm going to start massively stocking away in my after-tax contributions.

Engineer250
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Joined: Wed Jun 22, 2016 1:41 pm

Re: Am I able to do a Mega Backdoor ROTH?

Post by Engineer250 » Mon Apr 15, 2019 4:48 pm

s0me0nesmind1 wrote:
Mon Apr 15, 2019 4:36 pm
Bump for an update:

I'm not the most qualified to ask the "appropriate" questions. But I called my 401k provider today (Voya) and I asked the question:

"Can I rollover my after-tax 401k contributions while still employed?" - This seemed like the appropriate question to ask - BH feel free to correct me if I'm wrong there.

The answer was "Yes" - I can apparently do an in-service (which I take to mean "while still employed") withdrawal of after-tax contributions. Note though: I followed up that with the question of "Does a withdrawal mean the same as a rollover?" and I was told yes, it can be a rollover as well.

So now I must ask BH - did my question/answer to my 401k provider tell me all I need? Or do I need to ask any follow-up questions just to make sure? Otherwise I'm going to start massively stocking away in my after-tax contributions.
The only other things I’d ask is how often you can (mine is once a year, other folks on here are once a month) and how to set that up. Mine you have to call in and talk them through it. Which is annoying. But the good news is Vanguard is my 401k administrator so I was able to directly roll into my Roth IRA with them.
Where the tides of fortune take us, no man can know.

decapod10
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Re: Am I able to do a Mega Backdoor ROTH?

Post by decapod10 » Mon Apr 15, 2019 4:55 pm

That sounds like you can do it. It
s0me0nesmind1 wrote:
Mon Apr 15, 2019 4:36 pm
Bump for an update:

I'm not the most qualified to ask the "appropriate" questions. But I called my 401k provider today (Voya) and I asked the question:

"Can I rollover my after-tax 401k contributions while still employed?" - This seemed like the appropriate question to ask - BH feel free to correct me if I'm wrong there.

The answer was "Yes" - I can apparently do an in-service (which I take to mean "while still employed") withdrawal of after-tax contributions. Note though: I followed up that with the question of "Does a withdrawal mean the same as a rollover?" and I was told yes, it can be a rollover as well.

So now I must ask BH - did my question/answer to my 401k provider tell me all I need? Or do I need to ask any follow-up questions just to make sure? Otherwise I'm going to start massively stocking away in my after-tax contributions.
Yes, "in-service" means while you still work for them, which is what you want. Specifically you want "in-service non-hardship" withdrawals which sounds like what you have.

I'm no expert, but it sounds to me like you're good to go. If you're not sure, maybe you can just try it once with a small amount of money and see if you run into any hiccups. Our employer allows in-plan conversions to Roth 401k only once per quarter, so check to see if there are any other rules like that.

If you really want to nail them down before you do anything, you can call them and just tell them exactly what you want to do. "I want to make an after-tax contribution to my 401k, then roll the after tax portion over to my Roth IRA. Can I do that?" They should give you an answer. It's not illegal and I'm sure they are familiar with what you are talking about.

Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Am I able to do a Mega Backdoor ROTH?

Post by Spirit Rider » Mon Apr 15, 2019 5:17 pm

You know all you need to know to determine if you can do a so-called Mega Backdoor Roth, but not necessarily how you can do it.

There are only two types of transactions in a retirement plan/account; contributions and distributions. A withdrawal is just another term for a distribution.

A rollover is a combined withdrawal/distribution from one plan/account and a rollover contribution to another plan/account.

In-service by definition means while employed.

So if your plan allows in-service withdrawals, it allows in-service rollovers.

A plan must support one direct rollover. While they are allowed to support direct split rollovers of after-tax contributions to a Roth IRA and earnings to a traditional IRA, they are not required to.

If you want to rollover both contributions and earnings to the Roth IRA, you do not have to ask any additional questions. However, if you would like to do a split rollover and roll the earnings back into the plan to preserve the ability to do a Backdoor Roth, you need to know the answer to two questions.

1. Do they support two direct split rollovers to Roth and traditional IRAs.
2. Do the accept IRA rollover contributions.

Topic Author
s0me0nesmind1
Posts: 140
Joined: Mon Aug 05, 2013 3:15 pm

Re: Am I able to do a Mega Backdoor ROTH?

Post by s0me0nesmind1 » Mon Apr 15, 2019 5:33 pm

Engineer250 wrote:
Mon Apr 15, 2019 4:48 pm
s0me0nesmind1 wrote:
Mon Apr 15, 2019 4:36 pm
Bump for an update:

I'm not the most qualified to ask the "appropriate" questions. But I called my 401k provider today (Voya) and I asked the question:

"Can I rollover my after-tax 401k contributions while still employed?" - This seemed like the appropriate question to ask - BH feel free to correct me if I'm wrong there.

The answer was "Yes" - I can apparently do an in-service (which I take to mean "while still employed") withdrawal of after-tax contributions. Note though: I followed up that with the question of "Does a withdrawal mean the same as a rollover?" and I was told yes, it can be a rollover as well.

So now I must ask BH - did my question/answer to my 401k provider tell me all I need? Or do I need to ask any follow-up questions just to make sure? Otherwise I'm going to start massively stocking away in my after-tax contributions.
The only other things I’d ask is how often you can (mine is once a year, other folks on here are once a month) and how to set that up. Mine you have to call in and talk them through it. Which is annoying. But the good news is Vanguard is my 401k administrator so I was able to directly roll into my Roth IRA with them.
The Voya person happen to mention that without me asking - and she was a bit taken aback with how unexpected her own answer was... "daily" apparently... :shock: I even followed it up and said "And... did you say daily as far as the how often?" and she confirmed yes.

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