New employer 401k roth

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
levocap
Posts: 11
Joined: Tue Jun 20, 2017 9:46 am

New employer 401k roth

Post by levocap » Thu Jun 14, 2018 6:28 am

Hi - I had 2 employers this year. Old one only had 401k and I maxed out and contributed $18.5k this year. New employer has both 401k and roth 401k. Can i still contribute to the roth 401k THIS YEAR at the new employer? My understanding is that the total 401k IRA contribution is $55k (including employer contribution) so I can invest the difference in the roth 401k. Is this the mega back door roth that people keep talking about? Sorry, this is the first time that I had an employer that offers both 401k and roth 401k so a bit of newbie on this. I plan to max out on any contribution i can so that I can FIRE. Thanks in advance.


CrazyCatLady
Posts: 16
Joined: Mon Apr 30, 2018 9:19 pm

Re: New employer 401k roth

Post by CrazyCatLady » Thu Jun 14, 2018 7:03 am

levocap wrote:
Thu Jun 14, 2018 6:28 am
Hi - I had 2 employers this year. Old one only had 401k and I maxed out and contributed $18.5k this year. New employer has both 401k and roth 401k. Can i still contribute to the roth 401k THIS YEAR at the new employer? My understanding is that the total 401k IRA contribution is $55k (including employer contribution) so I can invest the difference in the roth 401k. Is this the mega back door roth that people keep talking about? Sorry, this is the first time that I had an employer that offers both 401k and roth 401k so a bit of newbie on this. I plan to max out on any contribution i can so that I can FIRE. Thanks in advance.
I think the only way you can invest more than the $18,500 you already invested this year is if your plan allows after tax contributions. I believe you could roll your after tax contributions into a backdoor Roth (assuming your plan allows it). Hopefully someone else will answer and give you more details because I know just enough to be dangerous :)

Do you have an IRA? You can also invest $5500 per year there.

ExitStageLeft
Posts: 312
Joined: Sat Jan 20, 2018 4:02 pm

Re: New employer 401k roth

Post by ExitStageLeft » Thu Jun 14, 2018 7:04 am

Your elective contributions to all 401ks are limited to $18,500. So if you hit the max with the first employer you can't contribute any more to the second. You can however make after-tax contributions to a 401k if your plan allows. That is the first step in a mega backdoor Roth. However if your new job plan is a 401k Roth to begin with it seems an unnecessary step.

It sounds like there is no difference between making elective contribution and making after-tax contribution when it comes to a 401k Roth. But the IRS will care a lot if you make more than $18.5k in elective contributions. It will come down to how it gets reported on your W-2, so you need to know that your new 401k accepts after-tax contributions and that your employer will correctly code it that way.

It wouldn't hurt to read up on this at the IRS web site.

levocap
Posts: 11
Joined: Tue Jun 20, 2017 9:46 am

Re: New employer 401k roth

Post by levocap » Thu Jun 14, 2018 7:17 am

But contributions to roth 401k is technically post-tax right? So presumably, someone can contribute $18.5k to traditional 401k and another $36.5k in the roth 401k? Or is the post-tax contribution feature a different treatment than the roth 401k account?

retiredjg
Posts: 32671
Joined: Thu Jan 10, 2008 12:56 pm

Re: New employer 401k roth

Post by retiredjg » Thu Jun 14, 2018 7:20 am

As an employee, you get to contribute $18.5k as "elective deferrals". It can go into traditional 401k or Roth 401k or a combination of the two. Sounds like you have already done that.

If your new plan also offers "after tax employee contributions" (which is NOT the same thing as Roth 401k), you could contribute that way up to the $55k limit assuming that your employer does not contribute match or profit share. The total of your elective deferrals and employer contributions and your after-tax employee contributions cannot exceed $55k.

Not all plans have this "after-tax employee contribution" feature. If a plan allows this option and also allows "in-service distributions" of the after-tax account, that would be the "mega back door".

retiredjg
Posts: 32671
Joined: Thu Jan 10, 2008 12:56 pm

Re: New employer 401k roth

Post by retiredjg » Thu Jun 14, 2018 7:21 am

levocap wrote:
Thu Jun 14, 2018 7:17 am
But contributions to roth 401k is technically post-tax right? So presumably, someone can contribute $18.5k to traditional 401k and another $36.5k in the roth 401k? Or is the post-tax contribution feature a different treatment than the roth 401k account?
Yes, Roth 401k contributions are technically "post tax" but they are not the same thing as "after-tax employee contributions".

Spirit Rider
Posts: 7977
Joined: Fri Mar 02, 2007 2:39 pm

Re: New employer 401k roth

Post by Spirit Rider » Thu Jun 14, 2018 9:40 am

As has been pointed out, there are two classes and three types of employee contributions:
  • Elective
    • Pre-tax deferrals
    • Post-tax designated Roth
  • Voluntary
    • After-tax
There is a single employee elective contribution limit (2018 = $18.5K) across all (401k, 403b, SIMPLE and SARSEP IRA) plans at all employers. There is a separate employee + employer annual addition limit (2018 = $55K) for each unaffiliated employer.

As has been pointed out. If you have already made employee elective deferrals of $18.5K You can't make any more employee elective contributions including designated Roth contributions.

As has also been pointed out. If your new employer plan allows employee after-tax contributions and in-service rollovers. You can make after-tax contributions and roll them over to a Roth IRA.

If your new employer plan allows employee after-tax contributions and In-plan Roth Rollovers (IRR). You can make after-tax contributions and roll them over to your designated Roth 401k account. Since this is not technically s designated Roth contribution, it is not subject to the $18.5K employee elective contribution limit.

Since this this is a new employer, employee after-tax contributions would be limited to $55K - any employer contributions. However, an employer can set lower limits and if you are a HCE, your contributions could be further limited by ACP testing failure.

Post Reply