Roth 401(k) - Is this normal?

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SoDakJeff
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Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 7:44 am

My wife has a 403(b) and a 401(k) at Principal. She doesn't contribute to the old 403(b).

I had our 2018 taxes done this year by our accountant/tax guy, due to a somewhat complicated inheritance I received last year. After these were done, he said we should stop funding the 401(k) and instead start funding a Roth 401(k) at her current contribution rate (13%), with the plan to do other Roth conversions going forward. The switch to the Roth started with my wife's last paycheck on April 5th. Since that time, I've been checking the Principal site to make sure everything was going as planned.

The site shows that her last Roth contribution was received, but I continue to see only the 403(b) and 401(k) accounts showing - no Roth 401(k). I contacted Principal about this and was told that the Roth contribution was deposited in the regular 401(k) account as an after-tax contribution. They said they keep track of which funds are pre-tax and which ones are post-tax.

Is this the way this is supposed to work? Co-mingling pre- and post-tax contributions in the same account? It seems like this adds an unnecessary complication when it comes time to withdraw funds for retirement or transfer the account (which I plan to do - to Vanguard) when my wife retires.

I've started a spreadsheet with her pre- and post-tax contributions for the year, just to keep track.

Am I being overly concerned about this? Thanks.

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Re: Roth 401(k) - Is this normal?

Post by oldcomputerguy » Sat Apr 13, 2019 7:53 am

This normally would make me nervous as well. I'm not sure I'd trust them to keep it straight. It's good that you're tracking it separately. (I'd also strongly suggest you keep your statements from this account going forward.)

However, this article seems to offer some guidance on how this money will be taxed on withdrawal, and it's not bad news.
The IRS has offered a ruling which clarifies what happens to your after tax contributions. You can roll any after tax contributions directly into a Roth IRA thanks to the ruling made clear by the IRS for 2015. This actually can only take place once you leave your current employer or retire. In the past it was murky on what to do with after tax contributions and in some cases you would have had to pay taxes in order to roll it into a Roth IRA. Thankfully this is not the case anymore!
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 8:16 am

oldcomputerguy wrote:
Sat Apr 13, 2019 7:53 am
This normally would make me nervous as well. I'm not sure I'd trust them to keep it straight. It's good that you're tracking it separately. (I'd also strongly suggest you keep your statements from this account going forward.)

However, this article seems to offer some guidance on how this money will be taxed on withdrawal, and it's not bad news.
The IRS has offered a ruling which clarifies what happens to your after tax contributions. You can roll any after tax contributions directly into a Roth IRA thanks to the ruling made clear by the IRS for 2015. This actually can only take place once you leave your current employer or retire. In the past it was murky on what to do with after tax contributions and in some cases you would have had to pay taxes in order to roll it into a Roth IRA. Thankfully this is not the case anymore!
Thanks for the link. The article made my head spin a little, but it does ease my concern a bit. Sure seems like it would be a lot less complicated for them to simply start a separate Roth 401(k).

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Re: Roth 401(k) - Is this normal?

Post by oldcomputerguy » Sat Apr 13, 2019 8:21 am

SoDakJeff wrote:
Sat Apr 13, 2019 8:16 am
Thanks for the link. The article made my head spin a little, but it does ease my concern a bit. Sure seems like it would be a lot less complicated for them to simply start a separate Roth 401(k).
You're welcome. I hope it helps. I did notice, by the way, that I inadvertently left out a link in my previous post to "this article"; I've fixed it now, you might give it a look to see if it's a little less head-spinning.
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Re: Roth 401(k) - Is this normal?

Post by RickBoglehead » Sat Apr 13, 2019 8:22 am

This is totally normal. My wife has a 403b with Fidelity, which is similar to a 401K. She has both ROTH and pre-tax contributions. Fidelity puts them in the same account. I don't like that either.

If I click on the detail of a transaction, I can see the two different buckets. Further, they charge the management fee all to one bucket (pre-tax).

We have to go to the Sources screen on the Fidelity site (actually Fidelity Net Benefits) to see the breakdown between ROTH and pre-tax, which they call Salary Referral. Further info for Fidelity specifically - ROTH is bucket 09, pre-tax is bucket 01 (Salary Reduction).
Last edited by RickBoglehead on Sat Apr 13, 2019 8:49 am, edited 1 time in total.
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 8:27 am

oldcomputerguy wrote:
Sat Apr 13, 2019 8:21 am
SoDakJeff wrote:
Sat Apr 13, 2019 8:16 am
Thanks for the link. The article made my head spin a little, but it does ease my concern a bit. Sure seems like it would be a lot less complicated for them to simply start a separate Roth 401(k).
You're welcome. I hope it helps. I did notice, by the way, that I inadvertently left out a link in my previous post to "this article"; I've fixed it now, you might give it a look to see if it's a little less head-spinning.
You're right - that one was better! Thanks.

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Re: Roth 401(k) - Is this normal?

Post by terran » Sat Apr 13, 2019 8:31 am

Fidelity 403(b) with one account and different "sources" to track traditional/Roth here. Doesn't really worry me. They could just as easily mess up separate accounts as mess up the tracking of "source."

I'd be more concerned that they used the term "after tax" rather than Roth. Roth is an after tax account in that you pay tax on the contributions, but an after-tax account is something different, so you should make very sure that you're making Roth contributions.

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Re: Roth 401(k) - Is this normal?

Post by sailaway » Sat Apr 13, 2019 8:33 am

It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.

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Re: Roth 401(k) - Is this normal?

Post by FoolMeOnce » Sat Apr 13, 2019 8:34 am

oldcomputerguy wrote:
Sat Apr 13, 2019 7:53 am
This normally would make me nervous as well. I'm not sure I'd trust them to keep it straight. It's good that you're tracking it separately. (I'd also strongly suggest you keep your statements from this account going forward.)

However, this article seems to offer some guidance on how this money will be taxed on withdrawal, and it's not bad news.
The IRS has offered a ruling which clarifies what happens to your after tax contributions. You can roll any after tax contributions directly into a Roth IRA thanks to the ruling made clear by the IRS for 2015. This actually can only take place once you leave your current employer or retire. In the past it was murky on what to do with after tax contributions and in some cases you would have had to pay taxes in order to roll it into a Roth IRA. Thankfully this is not the case anymore!
This article describes mega-backdoor Roth contributions. This is different from a Roth 401k. As the article says, after-tax contributions to a traditional 401k after exceeding the deductable limit can be rolled to a Roth IRA. What OP wants is also for the earnings to not be taxed. A Roth 401k provides this; after-tax money in a traditional 401k does not. There is a distinction.

That said, I don't know if it is normal to combine the contributions in a single account. It seems concerning. OP, have your spouse inquire about how earnings on her "Roth" contributions are treated upon withdrawal, and make sure the administrator confirms that these are Roth contributions rather than after-tax contributions. I've known one HR department that did not know the difference.

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Re: Roth 401(k) - Is this normal?

Post by ResearchMed » Sat Apr 13, 2019 8:42 am

sailaway wrote:
Sat Apr 13, 2019 8:33 am
It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.
This seems strange.

Are you able to designate which type of money (trad, Roth, after-tax) is invested in which way?
Or is it all done proportionately.
And if it's not proportionate (which I'd hope it isn't, but now think might be??), then how can you see how it is all doing, the same as if it were separate accounts.
For example, some recommend certain types of investment products in different "tax-type" accounts, such as hopefully to utilize the tax-free growth of higher return holdings, etc., or non-taxable for those that aren't tax efficient, etc.

RM
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Re: Roth 401(k) - Is this normal?

Post by sailaway » Sat Apr 13, 2019 8:50 am

ResearchMed wrote:
Sat Apr 13, 2019 8:42 am
sailaway wrote:
Sat Apr 13, 2019 8:33 am
It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.
This seems strange.

Are you able to designate which type of money (trad, Roth, after-tax) is invested in which way?
Or is it all done proportionately.
And if it's not proportionate (which I'd hope it isn't, but now think might be??), then how can you see how it is all doing, the same as if it were separate accounts.
For example, some recommend certain types of investment products in different "tax-type" accounts, such as hopefully to utilize the tax-free growth of higher return holdings, etc., or non-taxable for those that aren't tax efficient, etc.

RM
We currently place bonds in my traditional accounts and his old (entirely traditional) 401k. We can designate what happens to the funds as they go in by only contributing one type at a time, but once in, we don't seem to be able to rebalance by type. This is Fidelity, so I would be glad to hear otherwise.

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Re: Roth 401(k) - Is this normal?

Post by RickBoglehead » Sat Apr 13, 2019 8:51 am

ResearchMed wrote:
Sat Apr 13, 2019 8:42 am
sailaway wrote:
Sat Apr 13, 2019 8:33 am
It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.
This seems strange.

Are you able to designate which type of money (trad, Roth, after-tax) is invested in which way?
Or is it all done proportionately.
And if it's not proportionate (which I'd hope it isn't, but now think might be??), then how can you see how it is all doing, the same as if it were separate accounts.
For example, some recommend certain types of investment products in different "tax-type" accounts, such as hopefully to utilize the tax-free growth of higher return holdings, etc., or non-taxable for those that aren't tax efficient, etc.

RM
On the Fidelity site, everything is as you would expect. You can invest the money in each bucket any way you want. Nothing is done proportionally.
sailaway wrote:
Sat Apr 13, 2019 8:50 am
We currently place bonds in my traditional accounts and his old (entirely traditional) 401k. We can designate what happens to the funds as they go in by only contributing one type at a time, but once in, we don't seem to be able to rebalance by type. This is Fidelity, so I would be glad to hear otherwise.
If you want to change the current investments on the Fidelity NetBenefits site, and wish to do the ROTH differently than the pre-tax (or part of one or the other), you would simply need to log in, click on the Investments tab, click on Change Investments, then click on the third box, "Exchange Multiple Investments". You then click on Start Your Rebalance, and you are presented with two options - All Eligible Sources and Single Sources. Pick Single Sources if you want to rebalance the ROTH differently than the Pre-Tax.
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Re: Roth 401(k) - Is this normal?

Post by oldcomputerguy » Sat Apr 13, 2019 9:06 am

terran wrote:
Sat Apr 13, 2019 8:31 am
I'd be more concerned that they used the term "after tax" rather than Roth. Roth is an after tax account in that you pay tax on the contributions, but an after-tax account is something different, so you should make very sure that you're making Roth contributions.
That concerned me, too. However, according to the linked article, after-tax 401k contributions can be rolled out tax-free to a Roth IRA, so if that's true, the net bottom-line effect is the same. The caveat is to make sure the post-tax contributions are tracked properly in the first place.
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Re: Roth 401(k) - Is this normal?

Post by ResearchMed » Sat Apr 13, 2019 9:09 am

RickBoglehead wrote:
Sat Apr 13, 2019 8:51 am
ResearchMed wrote:
Sat Apr 13, 2019 8:42 am
sailaway wrote:
Sat Apr 13, 2019 8:33 am
It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.
This seems strange.

Are you able to designate which type of money (trad, Roth, after-tax) is invested in which way?
Or is it all done proportionately.
And if it's not proportionate (which I'd hope it isn't, but now think might be??), then how can you see how it is all doing, the same as if it were separate accounts.
For example, some recommend certain types of investment products in different "tax-type" accounts, such as hopefully to utilize the tax-free growth of higher return holdings, etc., or non-taxable for those that aren't tax efficient, etc.

RM
On the Fidelity site, everything is as you would expect. You can invest the money in each bucket any way you want. Nothing is done proportionally.
sailaway wrote:
Sat Apr 13, 2019 8:50 am
We currently place bonds in my traditional accounts and his old (entirely traditional) 401k. We can designate what happens to the funds as they go in by only contributing one type at a time, but once in, we don't seem to be able to rebalance by type. This is Fidelity, so I would be glad to hear otherwise.
If you want to change the current investments on the Fidelity NetBenefits site, and wish to do the ROTH differently than the pre-tax (or part of one or the other), you would simply need to log in, click on the Investments tab, click on Change Investments, then click on the third box, "Exchange Multiple Investments". You then click on Start Your Rebalance, and you are presented with two options - All Eligible Sources and Single Sources. Pick Single Sources if you want to rebalance the ROTH differently than the Pre-Tax.
Thanks. Good to know!

It seems overly confusing, both mentally and in practice, vs. just having separate accounts, but ... "whatever"...
... as long as one can allocate as one wishes!

It would be so much better to be able just to glance at the totals *per account* type, the way we can, even at Fidelity, for the 403b and IRA totals (including each holding and amount).

Is there a reason why Fidelity (and apparently other vendors?) combine them?
For example, at all of our 403b vendors, we can separately see "Core" vs. "Brokerage window" holdings, including if there is overlap with the same fund being in more than one account/account type.

For example, how is Fidelity "benefiting" from this? Presumably they get more customer service inquiries about this, given that it "obviously isn't obvious" :wink:

RM
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Re: Roth 401(k) - Is this normal?

Post by terran » Sat Apr 13, 2019 9:12 am

oldcomputerguy wrote:
Sat Apr 13, 2019 9:06 am
terran wrote:
Sat Apr 13, 2019 8:31 am
I'd be more concerned that they used the term "after tax" rather than Roth. Roth is an after tax account in that you pay tax on the contributions, but an after-tax account is something different, so you should make very sure that you're making Roth contributions.
That concerned me, too. However, according to the linked article, after-tax 401k contributions can be rolled out tax-free to a Roth IRA, so if that's true, the net bottom-line effect is the same. The caveat is to make sure the post-tax contributions are tracked properly in the first place.
They can be, but you'll pay tax on any gains there have been as of the date of the rollover. Although, you can roll over the contributions to a Roth IRA and the earnings to to traditional to continue to defer tax on the gains. If the plan allows in service withdrawals you could do this process while working to reduce the gains before getting it in Roth.

Regardless, the OP should clarify with the plan administrator to find out if this is an after-tax account or a Roth account.

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Re: Roth 401(k) - Is this normal?

Post by RickBoglehead » Sat Apr 13, 2019 9:13 am

ResearchMed wrote:
Sat Apr 13, 2019 9:09 am


Thanks. Good to know!

It seems overly confusing, both mentally and in practice, vs. just having separate accounts, but ... "whatever"...
... as long as one can allocate as one wishes!

It would be so much better to be able just to glance at the totals *per account* type, the way we can, even at Fidelity, for the 403b and IRA totals (including each holding and amount).

Is there a reason why Fidelity (and apparently other vendors?) combine them?
For example, at all of our 403b vendors, we can separately see "Core" vs. "Brokerage window" holdings, including if there is overlap with the same fund being in more than one account/account type.

For example, how is Fidelity "benefiting" from this? Presumably they get more customer service inquiries about this, given that it "obviously isn't obvious" :wink:

RM
The vast majority of people don't know that 401k/403b plans can have ROTH investments, or don't know what ROTH is.

Some plans don't offer ROTH.

Customers aren't screaming for this capability (not that NetBenefits cares what customers think).
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Re: Roth 401(k) - Is this normal?

Post by IowaFarmBoy » Sat Apr 13, 2019 9:18 am

My 401k works that way. It is treated as one big pool for which they keep track of the percentages of Roth and traditional. I cannot separate the investments so the Roth and traditional are just proportions of that pool.

At withdrawal time, I cannot specify that I want a Roth or traditional withdrawal. Any withdrawals are made up of both according to their proportions. I can't say I want all of this withdrawal from Roth or traditional.

Given this, I will be rolling this 401k into other accounts at Fidelity and Vanguard so they can be split. I recently became eligible to withdraw at 59.5 so I have already moved my Roth portion over to Vanguard. I'm not currently making any contributions to the Roth side because of my current tax bracket.

While it does mean the plan administrator only has to keep track of one account, this seems like it would be very hard to keep track of.

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Re: Roth 401(k) - Is this normal?

Post by ResearchMed » Sat Apr 13, 2019 9:21 am

RickBoglehead wrote:
Sat Apr 13, 2019 9:13 am
ResearchMed wrote:
Sat Apr 13, 2019 9:09 am


Thanks. Good to know!

It seems overly confusing, both mentally and in practice, vs. just having separate accounts, but ... "whatever"...
... as long as one can allocate as one wishes!

It would be so much better to be able just to glance at the totals *per account* type, the way we can, even at Fidelity, for the 403b and IRA totals (including each holding and amount).

Is there a reason why Fidelity (and apparently other vendors?) combine them?
For example, at all of our 403b vendors, we can separately see "Core" vs. "Brokerage window" holdings, including if there is overlap with the same fund being in more than one account/account type.

For example, how is Fidelity "benefiting" from this? Presumably they get more customer service inquiries about this, given that it "obviously isn't obvious" :wink:

RM
The vast majority of people don't know that 401k/403b plans can have ROTH investments, or don't know what ROTH is.

Some plans don't offer ROTH.

Customers aren't screaming for this capability (not that NetBenefits cares what customers think).
I guess I just don't understand how Fidelity benefits (er, NetBenefits benefits?) from handling these DIFFERENTLY from the 'regular" 403b/IRA distinctions automatically.
Why NOT have the Roth as another sort of "sub-account" under the 403b header/category, similar to Core and Brokerage Window sub-accounts?

If nothing else, then they don't have customers calling to ask "how" or to have customer service walk them through what is described above, etc.? It sounds likely that not all service reps would even know what the question is (if our experiences with anything even slightly out of the ordinary are examples).

As an aside, what IS "NetBenefits", anyway?
We used to have to log in through "them", but now go directly to Fidelity, and then, same as before, see the accounts/holdings, and can make any transactions.
It all looks the same, except we don't go "through" NetBenefits anymore (or, perhaps, aren't aware we are doing so?).

Thanks!

RM
This signature is a placebo. You are in the control group.

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Re: Roth 401(k) - Is this normal?

Post by oldcomputerguy » Sat Apr 13, 2019 9:27 am

ResearchMed wrote:
Sat Apr 13, 2019 9:21 am
As an aside, what IS "NetBenefits", anyway?
We used to have to log in through "them", but now go directly to Fidelity, and then, same as before, see the accounts/holdings, and can make any transactions.
It all looks the same, except we don't go "through" NetBenefits anymore (or, perhaps, aren't aware we are doing so?).
Netbenefits is the dedicated portal for participants of 401k plans. I used to have to use that address to access my workplace 401k plan. It didn't require setting up a Fidelity account, it was 401k-specific. Later I opened a Fidelity brokerage account for taxable investing, and lo and behold there was a link at the top of the home page that transparently took me to Netbenefits and my 401k holdings; likewise there was a link on Netbenefits that took me back to my non-401k accounts. So I believe that while they are both Fidelity, they serve two different purposes (even though one can transparently go between the two).
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Re: Roth 401(k) - Is this normal?

Post by sailaway » Sat Apr 13, 2019 9:30 am

RickBoglehead wrote:
Sat Apr 13, 2019 8:51 am
ResearchMed wrote:
Sat Apr 13, 2019 8:42 am
sailaway wrote:
Sat Apr 13, 2019 8:33 am
It is unfortunately normal. DH has traditional, Roth and after tax funds in one account. When he calls to roll out the after tax, he finds out how much there is, along with how much growth is attributed to it, but there is no way of seeing that online.
This seems strange.

Are you able to designate which type of money (trad, Roth, after-tax) is invested in which way?
Or is it all done proportionately.
And if it's not proportionate (which I'd hope it isn't, but now think might be??), then how can you see how it is all doing, the same as if it were separate accounts.
For example, some recommend certain types of investment products in different "tax-type" accounts, such as hopefully to utilize the tax-free growth of higher return holdings, etc., or non-taxable for those that aren't tax efficient, etc.

RM
On the Fidelity site, everything is as you would expect. You can invest the money in each bucket any way you want. Nothing is done proportionally.
sailaway wrote:
Sat Apr 13, 2019 8:50 am
We currently place bonds in my traditional accounts and his old (entirely traditional) 401k. We can designate what happens to the funds as they go in by only contributing one type at a time, but once in, we don't seem to be able to rebalance by type. This is Fidelity, so I would be glad to hear otherwise.
If you want to change the current investments on the Fidelity NetBenefits site, and wish to do the ROTH differently than the pre-tax (or part of one or the other), you would simply need to log in, click on the Investments tab, click on Change Investments, then click on the third box, "Exchange Multiple Investments". You then click on Start Your Rebalance, and you are presented with two options - All Eligible Sources and Single Sources. Pick Single Sources if you want to rebalance the ROTH differently than the Pre-Tax.
Yay! This also allows you to see your balances for the different sources!!

And he wonders why I keep reading forums!
Last edited by sailaway on Sat Apr 13, 2019 10:03 am, edited 1 time in total.

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Re: Roth 401(k) - Is this normal?

Post by RickBoglehead » Sat Apr 13, 2019 9:32 am

ResearchMed wrote:
Sat Apr 13, 2019 9:21 am
RickBoglehead wrote:
Sat Apr 13, 2019 9:13 am
ResearchMed wrote:
Sat Apr 13, 2019 9:09 am


Thanks. Good to know!

It seems overly confusing, both mentally and in practice, vs. just having separate accounts, but ... "whatever"...
... as long as one can allocate as one wishes!

It would be so much better to be able just to glance at the totals *per account* type, the way we can, even at Fidelity, for the 403b and IRA totals (including each holding and amount).

Is there a reason why Fidelity (and apparently other vendors?) combine them?
For example, at all of our 403b vendors, we can separately see "Core" vs. "Brokerage window" holdings, including if there is overlap with the same fund being in more than one account/account type.

For example, how is Fidelity "benefiting" from this? Presumably they get more customer service inquiries about this, given that it "obviously isn't obvious" :wink:

RM
The vast majority of people don't know that 401k/403b plans can have ROTH investments, or don't know what ROTH is.

Some plans don't offer ROTH.

Customers aren't screaming for this capability (not that NetBenefits cares what customers think).
I guess I just don't understand how Fidelity benefits (er, NetBenefits benefits?) from handling these DIFFERENTLY from the 'regular" 403b/IRA distinctions automatically.
Why NOT have the Roth as another sort of "sub-account" under the 403b header/category, similar to Core and Brokerage Window sub-accounts?

If nothing else, then they don't have customers calling to ask "how" or to have customer service walk them through what is described above, etc.? It sounds likely that not all service reps would even know what the question is (if our experiences with anything even slightly out of the ordinary are examples).

As an aside, what IS "NetBenefits", anyway?
We used to have to log in through "them", but now go directly to Fidelity, and then, same as before, see the accounts/holdings, and can make any transactions.
It all looks the same, except we don't go "through" NetBenefits anymore (or, perhaps, aren't aware we are doing so?).

Thanks!

RM
Most customers are clueless about this stuff.

When we had an issue with this account (Fidelity was putting the ROTH contributions into a bucket called "Employer", bucket 02), they had no clue. And they were unresponsive. We pushed Fidelity's Retirement division, and they said "that's NetBenefits". It's basically the institution side of Fidelity. Ended up going to Abby Johnson's office, and they didn't fix anything properly until I ended up spending hours of my time to fix things by setting up a 3 way conference call (employer, 3rd party company, and NetBenefits). Once fixed, we removed every penny of existing assets to ROTH and Rollover IRA accounts, and do that every year. Besides a very tiny HSA, Fidelity has almost none of our assets now.
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FoolMeOnce
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Re: Roth 401(k) - Is this normal?

Post by FoolMeOnce » Sat Apr 13, 2019 9:56 am

oldcomputerguy wrote:
Sat Apr 13, 2019 9:06 am
terran wrote:
Sat Apr 13, 2019 8:31 am
I'd be more concerned that they used the term "after tax" rather than Roth. Roth is an after tax account in that you pay tax on the contributions, but an after-tax account is something different, so you should make very sure that you're making Roth contributions.
That concerned me, too. However, according to the linked article, after-tax 401k contributions can be rolled out tax-free to a Roth IRA, so if that's true, the net bottom-line effect is the same. The caveat is to make sure the post-tax contributions are tracked properly in the first place.
As noted above, you still want to ensure the Roth earnings are not taxed. Earnings on "after-tax" contributions are taxed. There is a difference between Roth 401k and after-tax 401k contributions. That article describes the mega-backdoor Roth method.

I don't mean to sound snide, but it is concerning that people may read your posts in this thread and see that they are from a moderator and take them as more trustworthy, when they are providing bad information.

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SoDakJeff
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 11:43 am

FoolMeOnce wrote:
Sat Apr 13, 2019 8:34 am
oldcomputerguy wrote:
Sat Apr 13, 2019 7:53 am
This normally would make me nervous as well. I'm not sure I'd trust them to keep it straight. It's good that you're tracking it separately. (I'd also strongly suggest you keep your statements from this account going forward.)

However, this article seems to offer some guidance on how this money will be taxed on withdrawal, and it's not bad news.
The IRS has offered a ruling which clarifies what happens to your after tax contributions. You can roll any after tax contributions directly into a Roth IRA thanks to the ruling made clear by the IRS for 2015. This actually can only take place once you leave your current employer or retire. In the past it was murky on what to do with after tax contributions and in some cases you would have had to pay taxes in order to roll it into a Roth IRA. Thankfully this is not the case anymore!
This article describes mega-backdoor Roth contributions. This is different from a Roth 401k. As the article says, after-tax contributions to a traditional 401k after exceeding the deductable limit can be rolled to a Roth IRA. What OP wants is also for the earnings to not be taxed. A Roth 401k provides this; after-tax money in a traditional 401k does not. There is a distinction.

That said, I don't know if it is normal to combine the contributions in a single account. It seems concerning. OP, have your spouse inquire about how earnings on her "Roth" contributions are treated upon withdrawal, and make sure the administrator confirms that these are Roth contributions rather than after-tax contributions. I've known one HR department that did not know the difference.
Good advice - I'll do that.

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SoDakJeff
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 11:50 am

One other thing I forgot to mention in my first post...

Principal also informed me that while my wife's contribution is after-tax for the Roth, the employer's match goes in pre-tax to the 401(k). I suppose this means that only the wife's contributions will be able to transfer to a Roth IRA at a later date? Luckily, my wife's pay stub easily shows her contribution and the employer match, so I'll continue to track both from here on.

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Re: Roth 401(k) - Is this normal?

Post by whodidntante » Sat Apr 13, 2019 11:57 am

After tax is different than Roth. I recommend you confirm you are actually making Roth contributions.

My 401k custodian shows subaccounts for a number of contribution types. You cannot freely move money among the subaccounts and how distributions are handled is subject to plan rules. I would very much like to be able to distribute only the after tax subaccount for purposes of doing a mega backdoor Roth, but I can't. Plan rules say I also have to distribute rollover contributions proportionally at the same time.

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Re: Roth 401(k) - Is this normal?

Post by Spirit Rider » Sat Apr 13, 2019 12:51 pm

There is a common and fundamental misunderstanding about 401k "accounts".

The actual IRS regulations only require that the different taxation types of accounts (pre-tax, Designated Roth and employee after-tax) as well as their distributable status (employee deferrals, designated Roth contributions, employee after-tax contributions, vested employer contributions, non-vested employer contributions and (pre-tax, Roth and employee after-tax) rollovers are separately accounted for.

There is no requirement that they must be in clearly identified "accounts" to the participant. In fact the majority of 401k plans are in one "pooled" custodial account of all participants with all their different balances with a separate "record keeper". It is helpful, many record keepers do, but it is not required to provide "sub account" identification. There would be no problem on withdrawal as the 401k plan administrator/record keeper has all the necessary information to account for the different balances.

The problem was principal's and/or the OP's use of both post-tax and after-tax to describe the designated Roth contribution. While technically Roth contributions are after-tax, with the use of that term all kinds of people in this thread jumped on the assumption that they were really employee after-tax contributions. I think it is very likely that these are separately accounted for designated Roth contributions.

Still, I think the OP should call back in with a better understanding of the difference between designated Roth post-tax contributions and employee after-tax contributions and get it clarified.

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SoDakJeff
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Sat Apr 13, 2019 1:15 pm

Spirit Rider wrote:
Sat Apr 13, 2019 12:51 pm
There is a common and fundamental misunderstanding about 401k "accounts".

The actual IRS regulations only require that the different taxation types of accounts (pre-tax, Designated Roth and employee after-tax) as well as their distributable status (employee deferrals, designated Roth contributions, employee after-tax contributions, vested employer contributions, non-vested employer contributions and (pre-tax, Roth and employee after-tax) rollovers are separately accounted for.

There is no requirement that they must be in clearly identified "accounts" to the participant. In fact the majority of 401k plans are in one "pooled" custodial account of all participants with all their different balances with a separate "record keeper". It is helpful, many record keepers do, but it is not required to provide "sub account" identification. There would be no problem on withdrawal as the 401k plan administrator/record keeper has all the necessary information to account for the different balances.

The problem was principal's and/or the OP's use of both post-tax and after-tax to describe the designated Roth contribution. While technically Roth contributions are after-tax, with the use of that term all kinds of people in this thread jumped on the assumption that they were really employee after-tax contributions. I think it is very likely that these are separately accounted for designated Roth contributions.

Still, I think the OP should call back in with a better understanding of the difference between designated Roth post-tax contributions and employee after-tax contributions and get it clarified.
I'm just back from the Principal site, where I sent an email asking for clarification on whether the contributions are Roth or after tax. I suppose it will be Monday or Tuesday before I hear back, but I'll update here when I get something.

Thanks.

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Re: Roth 401(k) - Is this normal?

Post by cherijoh » Sat Apr 13, 2019 1:36 pm

SoDakJeff wrote:
Sat Apr 13, 2019 7:44 am
My wife has a 403(b) and a 401(k) at Principal. She doesn't contribute to the old 403(b).

I had our 2018 taxes done this year by our accountant/tax guy, due to a somewhat complicated inheritance I received last year. After these were done, he said we should stop funding the 401(k) and instead start funding a Roth 401(k) at her current contribution rate (13%), with the plan to do other Roth conversions going forward. The switch to the Roth started with my wife's last paycheck on April 5th. Since that time, I've been checking the Principal site to make sure everything was going as planned.

The site shows that her last Roth contribution was received, but I continue to see only the 403(b) and 401(k) accounts showing - no Roth 401(k). I contacted Principal about this and was told that the Roth contribution was deposited in the regular 401(k) account as an after-tax contribution. They said they keep track of which funds are pre-tax and which ones are post-tax.

Is this the way this is supposed to work? Co-mingling pre- and post-tax contributions in the same account? It seems like this adds an unnecessary complication when it comes time to withdraw funds for retirement or transfer the account (which I plan to do - to Vanguard) when my wife retires.

I've started a spreadsheet with her pre- and post-tax contributions for the year, just to keep track.

Am I being overly concerned about this? Thanks.
Technically you do have only one 401k. Can you check and see if their are separate sub-accounts? Or if you drill down into the holdings does it show the source? This may not show up in the quick view or the default statement view. Dig around a bit on line.

I have a 401k with Merrill Lynch as the sponsor. When I look at my fund summary, there are plus signs next to each holding. When I expand each entry, the balance in the fund is split out as pre-tax contribution, company match, and annual company contribution. (I didn't contribute to Roth, but if I had I'm certain it would show up as a separate line item).

If you can find a similar view for your wife's plan I wouldn't be concerned. If you can't find a similar view, then I'd keep up with the tracking.

cherijoh
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Re: Roth 401(k) - Is this normal?

Post by cherijoh » Sat Apr 13, 2019 1:38 pm

oldcomputerguy wrote:
Sat Apr 13, 2019 7:53 am
This normally would make me nervous as well. I'm not sure I'd trust them to keep it straight. It's good that you're tracking it separately. (I'd also strongly suggest you keep your statements from this account going forward.)

However, this article seems to offer some guidance on how this money will be taxed on withdrawal, and it's not bad news.
The IRS has offered a ruling which clarifies what happens to your after tax contributions. You can roll any after tax contributions directly into a Roth IRA thanks to the ruling made clear by the IRS for 2015. This actually can only take place once you leave your current employer or retire. In the past it was murky on what to do with after tax contributions and in some cases you would have had to pay taxes in order to roll it into a Roth IRA. Thankfully this is not the case anymore!
After tax contributions are NOT the same thing as Roth contributions. The OP is talking about a Roth 401k.

Oops, just noticed that the OP mentioned after-tax contribution. If you didn't misspeak, you need to determine whether you really have a Roth contribution or an after-tax contribution.
Last edited by cherijoh on Sat Apr 13, 2019 1:47 pm, edited 1 time in total.

cherijoh
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Re: Roth 401(k) - Is this normal?

Post by cherijoh » Sat Apr 13, 2019 1:45 pm

RickBoglehead wrote:
Sat Apr 13, 2019 9:13 am

The vast majority of people don't know that 401k/403b plans can have ROTH investments, or don't know what ROTH is.

Some plans don't offer ROTH.

Customers aren't screaming for this capability (not that NetBenefits cares what customers think).


Rick, Net Benefits administers the 401k plan as it is set up in the employer's plan documents. Don't blame any lack of features on them - it's all on the employer.

Now, you can blame them if the statements are confusing, etc.

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RickBoglehead
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Re: Roth 401(k) - Is this normal?

Post by RickBoglehead » Sat Apr 13, 2019 2:22 pm

cherijoh wrote:
Sat Apr 13, 2019 1:45 pm
RickBoglehead wrote:
Sat Apr 13, 2019 9:13 am

The vast majority of people don't know that 401k/403b plans can have ROTH investments, or don't know what ROTH is.

Some plans don't offer ROTH.

Customers aren't screaming for this capability (not that NetBenefits cares what customers think).


Rick, Net Benefits administers the 401k plan as it is set up in the employer's plan documents. Don't blame any lack of features on them - it's all on the employer.

Now, you can blame them if the statements are confusing, etc.
Right, employer has to add ROTH. NetBenefits could inform the employer that's an option though.

I said that customers weren't screaming for the ability to see ROTH and pre-tax in different sub accounts.
Avid user of forums on variety of interests-financial, home brewing, F-150, PHEV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.

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Re: Roth 401(k) - Is this normal?

Post by Lafder » Sat Apr 13, 2019 2:48 pm

My preference is to use the employee maximums to fund a regular pretax 401k and get the income tax break now.

The employee max is for Roth 401k PLUS pretax 401k, so I prefer to use the pretax space here.
2019 limits: 19,000, plus 6000 if 50 yo this year, or 25,000

With any additional funds, and if the 401k allows, fund "post tax" up to the total 401k limits.
2019 401k total limit: includes employer, employee, pretax/post tax/Roth is 56,000 or 62,000 if age 50 this year

If all needed features are in place, do a mega backdoor Roth and move the post tax 401k to a Roth out of your retirement plan. You will also need to transfer and pay tax on any gains from the post tax amount.

If you still have available $$, also do a back door Roth :)

That maxes all available tax favored pretax and Roth space if you have enough $$ to cover all and still afford to live.

If there is only enough $$ for some, I would still max pretax 401k as my priority then use any extra I could afford as post tax or Roth. Some employer plans match post tax, so that could push me to use the 401k post tax space if available.

lafder

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Re: Roth 401(k) - Is this normal?

Post by Dottie57 » Sat Apr 13, 2019 2:53 pm

Agree with lafder.

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Re: Roth 401(k) - Is this normal?

Post by Dottie57 » Sat Apr 13, 2019 2:57 pm

I have netbenefits too.

I can see the Roth 401k Indonesia by finding the “source” info. It gives the source of amounts in401k


Sources for me are

Employee pretax
Safe Harbor
Employer Match
Catch up
Roth 401k
Other ( no idea))

Just checked wher info is.

Summary page -> balance button clicked -> bottom right of page

JBTX
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Re: Roth 401(k) - Is this normal?

Post by JBTX » Sat Apr 13, 2019 3:40 pm

I have a vanguard 401k from prior employer and they are commingled. The Roth amount isn't obvious unless you look for it in another screen.

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SoDakJeff
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Re: Roth 401(k) - Is this normal?

Post by SoDakJeff » Tue Apr 16, 2019 8:09 am

I heard back from Principal this morning. They confirmed that all of my wife's contributions are categorized as Roth, although the employer match contributions are made on a pre-tax basis.

I'm feeling a little better about things now.

Thanks to all who offered advice and suggestions.

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