Limits on multiple 401ks and Mega Roth Backdoor

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mrbjb
Posts: 2
Joined: Wed Apr 11, 2018 8:08 pm

Limits on multiple 401ks and Mega Roth Backdoor

Post by mrbjb » Wed Apr 11, 2018 8:16 pm

Hi All!

I've just swapped employer mid-year, and both my previous and current employer offer(/ed) 401ks.

My goal is to contribute the max possible to both 401ks pre-tax and post-tax, and then convert all the post-tax contributions to a Roth IRA.

From what I've read, I understand that I can only contribute a total of $18.5k pre-tax summed across both employers, but that within each I can contribute $55k. This is what I'm hoping to confirm.

Specifically, my current plan is to:
- contribute $18.5k pre-tax at the first employer and receive an employer match of $9k dollars, and then contribute in aftertax: $27.5k in after tax, which maxes out my contribution in that 401k to $55k
- contribute $0k pre-tax at the second employer (and therefore receive no match), and contribute $55k in after-tax within that 401k.

Can someone please confirm that my understanding is correct and that I'm able to make these contributions? I've read other sites that say the limit is $55k total across all 401ks, while some other sites that say it's $55k per-401k (which would then allow me to make $18.5k of pre-tax at the second employer), so I'm not really sure.

Thanks in advance for your help!!!

seawolf21
Posts: 226
Joined: Tue Aug 05, 2014 7:33 am

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by seawolf21 » Wed Apr 11, 2018 10:29 pm

Your understanding is correct. Some companies match any employee contribution regardless of whether it is pre or post tax so you may want to confirm no match with new employer. You should also confirm new 401(k) allows for in-service distribution of after-tax if your intent is to perform mega backdoor Roth.

The elective deferral of $18.5K applies to you as a taxpayer regardless of number of 401(k)s you may have.

The “annual additions” 415(c) limit of $55k applies to each 401(k) account.

If you put in $18.5k pre tax at current 401(k), you should not make any pre-tax contributions at new employer this year.

mrbjb
Posts: 2
Joined: Wed Apr 11, 2018 8:08 pm

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by mrbjb » Thu Apr 12, 2018 10:51 am

Thanks! That was extremely helpful :)

I will confirm in-service distributions before proceeding, and employer match on after-tax just to be sure.

Thanks again!!

Sfynx
Posts: 6
Joined: Thu Apr 12, 2018 12:13 pm

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by Sfynx » Thu Apr 12, 2018 12:33 pm

i would set up 401k-backdoor roths for clients and you are going to run into a few issues.

-i've NEVER seen a 401k allow after tax contributions before maxing pretax contributions. most companies automatically stop contributions when you hit the 18.5 limit. most of the HR reps get confused about this and think you are referring to the roth 401k feature.
-this is like the most important feature along with if they allow in service withdrawals. very few companies allow this.

every time it went like this:

max out pretax 401k 18.5
got company match (lets say 6.5k for easy numbers)

that leaves 30k towards the 55k limit they could contribute after tax (to the pre tax portion of their 401k)then roll that portion over doing in service withdrawals.

Most 401k plans will stop and not allow any more contributions once you hit the 18.5 limit, this is the biggest issue clients would run into trying this trick.

call the new company and ask if they allow overfunding on the pre tax account.

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Earl Lemongrab
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Joined: Tue Jun 10, 2014 1:14 am

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by Earl Lemongrab » Thu Apr 12, 2018 7:07 pm

Sfynx wrote:
Thu Apr 12, 2018 12:33 pm
i would set up 401k-backdoor roths for clients and you are going to run into a few issues.

-i've NEVER seen a 401k allow after tax contributions before maxing pretax contributions. most companies automatically stop contributions when you hit the 18.5 limit. most of the HR reps get confused about this and think you are referring to the roth 401k feature.
-this is like the most important feature along with if they allow in service withdrawals. very few companies allow this.

every time it went like this:

max out pretax 401k 18.5
got company match (lets say 6.5k for easy numbers)

that leaves 30k towards the 55k limit they could contribute after tax (to the pre tax portion of their 401k)then roll that portion over doing in service withdrawals.

Most 401k plans will stop and not allow any more contributions once you hit the 18.5 limit, this is the biggest issue clients would run into trying this trick.

call the new company and ask if they allow overfunding on the pre tax account.
My experience at Megacorp was nothing like that.

You could do pretax, Roth, and after-tax simultaneously. You could even do all after-tax if you wanted.

If you chose to do any pretax or Roth, the contributions would automatically switch to after-tax when the deferral limit was reached.

Matching continued as usual. You had to contribute something in every pay period to get the full match.

Previous polls indicated that almost every company that allows after-tax also has in-service distributions.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

Bacchus01
Posts: 1704
Joined: Mon Dec 24, 2012 9:35 pm

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by Bacchus01 » Thu Apr 12, 2018 7:23 pm

Sfynx wrote:
Thu Apr 12, 2018 12:33 pm
i would set up 401k-backdoor roths for clients and you are going to run into a few issues.

-i've NEVER seen a 401k allow after tax contributions before maxing pretax contributions. most companies automatically stop contributions when you hit the 18.5 limit. most of the HR reps get confused about this and think you are referring to the roth 401k feature.
-this is like the most important feature along with if they allow in service withdrawals. very few companies allow this.

every time it went like this:

max out pretax 401k 18.5
got company match (lets say 6.5k for easy numbers)

that leaves 30k towards the 55k limit they could contribute after tax (to the pre tax portion of their 401k)then roll that portion over doing in service withdrawals.

Most 401k plans will stop and not allow any more contributions once you hit the 18.5 limit, this is the biggest issue clients would run into trying this trick.

call the new company and ask if they allow overfunding on the pre tax account.
Every plan I’ve been a part of, and we have funds in 5 different 401ks, did not work as you are suggesting.

seawolf21
Posts: 226
Joined: Tue Aug 05, 2014 7:33 am

Re: Limits on multiple 401ks and Mega Roth Backdoor

Post by seawolf21 » Thu Apr 12, 2018 7:29 pm

We’ve had 4 401(k)s between spouse and I in past 10 years and our experience also contradicts what Sfynx described.

If a plan accepts after tax and/or Roth 401(k) contributions, they will allow simultaneous contributions to pre-/after-/Roth 401(k) contributions as long as long as elective deferral and 415(c) limits are not breached.

I feel sorry for Sfynx’s clients if after-tax contribution is being referred to as “overfunding on the pre tax account.” Asking plan administrator if “overfunding on the pre tax account” is allowed will get nowhere as no plan will allow exceeding elective deferral.

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