Mega Backdoor Roth Mechanics

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halldr177
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Mega Backdoor Roth Mechanics

Post by halldr177 » Sun Feb 25, 2018 9:57 pm

Hi everyone!

I've been reading up on in preparation for doing my first Mega Backdoor Roth later this year. My employer plan is through Fidelity and my employer allows after-tax contributions. After speaking with a Fidelity rep and doing some research, it seems like I will have the ability to roll over the after tax contributions portion to a Roth IRA and the earnings on the after tax contributions to a Traditional IRA (which I can keep or roll to Roth later).

However, when I'm reading on the IRS website (https://www.irs.gov/retirement-plans/ro ... ment-plans), it says that rolling over just the after-tax amounts is not allowed:

Can I roll over just the after-tax amounts in my retirement plan to a Roth IRA and leave the remainder in the plan?

No, you can’t take a distribution of only the after-tax amounts and leave the rest in the plan. Any partial distribution from the plan must include some of the pretax amounts. Notice 2014-54 doesn’t change the requirement that each plan distribution must include a proportional share of the pretax and after-tax amounts in the account.

Does this mean some of my contributions to the traditional 401k account (i.e. pretax) need to be pulled out as well, or are they simply referring to earnings on after-tax contributions as "pretax" and not meaning traditional 401k balances?

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tfb
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Re: Mega Backdoor Roth Mechanics

Post by tfb » Sun Feb 25, 2018 10:25 pm

halldr177 wrote:
Sun Feb 25, 2018 9:57 pm
However, when I'm reading on the IRS website (https://www.irs.gov/retirement-plans/ro ... ment-plans), it says that rolling over just the after-tax amounts is not allowed
It says rolling over just the after-tax amounts without the associated earnings is not allowed. It's OK if you roll over the after-tax amounts together with the associated earnings.
Harry Sit, taking a break from the forums.

investor997
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Re: Mega Backdoor Roth Mechanics

Post by investor997 » Mon Feb 26, 2018 12:13 am

Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Mon Feb 26, 2018 12:08 pm

It's not even legal to distribute your pretax contributions unless you're 59-1/2 or other qualifying event.

If what you asked was really a thing, then Mega Backdoor wouldn't even exist. As noted, the separate accounting is what opens this back door.
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scalpel
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Re: Mega Backdoor Roth Mechanics

Post by scalpel » Wed Sep 12, 2018 7:57 pm

investor997 wrote:
Mon Feb 26, 2018 12:13 am
Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.
Question on this process - I have already maxed my roth IRA contributions this year with 5500. I then did my first megaroth rollover later and rolled the small amount of earnings my after tax contributions had made into a traditional IRA. However, having already maxed my roth IRA contributions, will the additional contribution to a traditional IRA put me over the IRA contribution limit for this year?

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Thu Sep 13, 2018 12:06 am

scalpel wrote:
Wed Sep 12, 2018 7:57 pm
Question on this process - I have already maxed my roth IRA contributions this year with 5500. I then did my first megaroth rollover later and rolled the small amount of earnings my after tax contributions had made into a traditional IRA. However, having already maxed my roth IRA contributions, will the additional contribution to a traditional IRA put me over the IRA contribution limit for this year?
Rollovers or conversions are not contributions.
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ATLCPA
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Re: Mega Backdoor Roth Mechanics

Post by ATLCPA » Thu Sep 13, 2018 11:08 pm

investor997 wrote:
Mon Feb 26, 2018 12:13 am
Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.
Do you have to call to initiate this once at month with Fidelity or can you initiate online?

Kind Regards,

investor997
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Re: Mega Backdoor Roth Mechanics

Post by investor997 » Thu Sep 13, 2018 11:15 pm

ATLCPA wrote:
Thu Sep 13, 2018 11:08 pm
investor997 wrote:
Mon Feb 26, 2018 12:13 am
Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.
Do you have to call to initiate this once at month with Fidelity or can you initiate online?

Kind Regards,
I have to call. There's no way to do it online. Their system blocks the transaction if you attempt to do it online from their Netbenefits site. I once asked a rep why this was the case and I got a somewhat vague answer about the tax implications of Roth IRA conversions.

ATLCPA
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Re: Mega Backdoor Roth Mechanics

Post by ATLCPA » Sat Sep 15, 2018 7:04 am

investor997 wrote:
Thu Sep 13, 2018 11:15 pm
ATLCPA wrote:
Thu Sep 13, 2018 11:08 pm
investor997 wrote:
Mon Feb 26, 2018 12:13 am
Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.
Do you have to call to initiate this once at month with Fidelity or can you initiate online?

Kind Regards,
I have to call. There's no way to do it online. Their system blocks the transaction if you attempt to do it online from their Netbenefits site. I once asked a rep why this was the case and I got a somewhat vague answer about the tax implications of Roth IRA conversions.
Perfect, thanks. Just wanted to see if the process was the same/similar at Fidelity.

Kind Regards,

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Wed Oct 17, 2018 6:11 pm

I have been researching this. According to my company (Vanguard Plan), I can only tx after tax funds out of my 401k once per year. So, if I fund it all year, it is going to make money, then I owe taxes on those earnings if I want to tx the whole "after tax" contribution amount into a Roth. So really all a Mega Backdoor Roth accomplishes is that it allows you to put more than 6500 (I am over 55) into your existing Roth. Correct?

sailaway
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Re: Mega Backdoor Roth Mechanics

Post by sailaway » Wed Oct 17, 2018 6:15 pm

krafty81 wrote:
Wed Oct 17, 2018 6:11 pm
I have been researching this. According to my company (Vanguard Plan), I can only tx after tax funds out of my 401k once per year. So, if I fund it all year, it is going to make money, then I owe taxes on those earnings if I want to tx the whole "after tax" contribution amount into a Roth. So really all a Mega Backdoor Roth accomplishes is that it allows you to put more than 6500 (I am over 55) into your existing Roth. Correct?
That is all it accomplishes, but that can be a pretty important part of planning future tax strategies. In your case, you could transfer the earnings to a traditional Roth, thus deferring the taxes.

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Wed Oct 17, 2018 6:40 pm

Understand I can put the earnings in a traditional Roth, but I use my traditional IRA to put money into for the purpose of a backdoor Roth. That would limit me from being able to do that due to taxes I would pay on the earnings that are in there from my mega-backdoor right? Or could I just open another traditional IRA to keep them separate...

AllMostThere
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Re: Mega Backdoor Roth Mechanics

Post by AllMostThere » Wed Oct 17, 2018 6:54 pm

investor997 wrote:
Mon Feb 26, 2018 12:13 am
Although it isn't intuitively obvious, Fidelity maintains a separate "account" in your 401k for just the after-tax contributions. For example, suppose you have $100K in your 401k which is made up of pretax contributions and their earnings. You recently started after-tax contributions and let them build up for a bit. For argument's sake, suppose you now have $1K of after-tax contributions and because the market moved up, $50 in pre-tax earnings on the $1K after-tax contributions. The total value of the 401k is $101,050, but for Mega rollover purposes, the $1,050 is treated separately by Fidelity. When you do the Mega Back Door rollover, you will convert all $1,050 at once. The pre-existing $100K can be left untouched.

The $1,000 in after tax contributions go into your Roth IRA. For the remaining $50 in pretax earnings you have two choices:
1) Roll it into a traditional Rollover IRA - pay no taxes
2) Roll (convert) it into your Roth IRA. You'll pay taxes on the $50.

I do this all the time with Fidelity - usually once a month. I like to get the after-tax $$ out of the 401k as quickly as possible before it earns anything. I always choose option 2). If done frequently enough, at year's end the total taxable amount will be pretty small. This depends on your particular 401k, however. Mine lets me do in-service rollovers as often as I want. Not all plans will let you do this.
This advice is spot on. I would add one additional option (1A) that would be beneficial if you make too much employment income and are disallowed Roth IRA regular contributions. I'm talking about the Roth IRA Backdoor method which is described in numerous other threads. Basically, key is to keep your traditional IRA @ $0 balance by year-end.

Option 1A) After rolling the after-tax gains from your 401K to Traditional IRA (pay no taxes), DO NOT buy any investments. Next day, initiate rolling your tIRA balance (the $50 after-tax gains in the example) back into your 401K (again pay no taxes). tIRA is now back @ $0 balance and you are ready for next Backdoor Roth IRA process. :sharebeer

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Wed Oct 17, 2018 7:01 pm

krafty81 wrote:
Wed Oct 17, 2018 6:11 pm
I have been researching this. According to my company (Vanguard Plan), I can only tx after tax funds out of my 401k once per year. So, if I fund it all year, it is going to make money, then I owe taxes on those earnings if I want to tx the whole "after tax" contribution amount into a Roth. So really all a Mega Backdoor Roth accomplishes is that it allows you to put more than 6500 (I am over 55) into your existing Roth. Correct?
"All"? That's a pretty big thing. Even though Megacorp allowed multiple free rollovers, I only did one per year. I'd backload the after-tax near the end of the year, then roll it out early the next. Plans are allowed (but not required) to split the rollover to put just the after-tax in Roth, and pretax in TIRA. I would just roll it all to Roth all for ease.
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pyld76
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Re: Mega Backdoor Roth Mechanics

Post by pyld76 » Wed Oct 17, 2018 9:24 pm

I do it once a year and pay any taxes due on earnings. This keeps me from having a Traditional IRA, which in turn facilitates the "regular" backdoor Roth absent the pro-rata problem a "long lived" tIRA would produce.

If you do this on the phone with Fidelity, be absolutely sure the Fido rep knows what you are trying to do. I've done this for years (in fact, for longer than the IRS has had explicit guidance on the subject) and for the first time this year, Fidelity screwed it up. They coded the transaction as if it was destined for a traditional IRA. They would've reported the wrong info on the 1099 (basis and pretax amounts into a tIRA rather than post-tax amounts and tax-owed amounts into a Roth). Be sure they know it's going to a Roth. I caught it before I sent the check to VG, but to get it fixed required calling fidelity back, having them pull the tapes of the first call, and basically "admitting" their rep screwed up.

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Thu Oct 18, 2018 9:26 am

Thanks for the info...another basic question, this obviously allows you to put more that 6500 into your Roth per year, right?

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Thu Oct 18, 2018 10:28 am

krafty81 wrote:
Thu Oct 18, 2018 9:26 am
Thanks for the info...another basic question, this obviously allows you to put more that 6500 into your Roth per year, right?
It has no relationship to your Roth contribution. This is a 401(k) contribution and a rollover to IRA. There is no limit on the latter.
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retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Thu Oct 18, 2018 10:33 am

scalpel wrote:
Wed Sep 12, 2018 7:57 pm
Question on this process - I have already maxed my roth IRA contributions this year with 5500. I then did my first megaroth rollover later and rolled the small amount of earnings my after tax contributions had made into a traditional IRA. However, having already maxed my roth IRA contributions, will the additional contribution to a traditional IRA put me over the IRA contribution limit for this year?
No. Your rollover contribution does not count as part of your annual IRA contribution limit.

What you are doing (rolling the earnings into traditional IRA) could clog up the works if you are using the back door to contribute to Roth IRA. You probably are not since you didn't mention that. Just mentioning it to be sure.

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Thu Oct 18, 2018 10:36 am

krafty81 wrote:
Wed Oct 17, 2018 6:40 pm
Understand I can put the earnings in a traditional Roth, but I use my traditional IRA to put money into for the purpose of a backdoor Roth. That would limit me from being able to do that due to taxes I would pay on the earnings that are in there from my mega-backdoor right? Or could I just open another traditional IRA to keep them separate...
A separate IRA does not protect from being pro-rated. If you are also using the ordinary back door, do not roll the earnings into tIRA unless you have the ability to roll them back into your 401k) before the end of the year.

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Thu Oct 18, 2018 3:11 pm

Thanks for the advice - amazing as always! Here is my plan -

Front load my normal 401K to 24500 (or whatever 2019 max is), maybe have that funded by end of June.

Do the rest as "after tax" contribution to 401K, staying under 61,000 (or whatever 2019 max is)

Roll that directly to my Roth IRA at end of the year (principal)

Roll earnings into my tIRA (paying taxes on that) - fund that up to 6500 from other accounts - then backdoor that into my Roth IRA.

Make sense? I don't think I would have a ton of earnings or dividends in six months.

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Thu Oct 18, 2018 3:21 pm

krafty81 wrote:
Thu Oct 18, 2018 3:11 pm
Roll earnings into my tIRA (paying taxes on that) - fund that up to 6500 from other accounts - then backdoor that into my Roth IRA.
If you're going to pay taxes (and you wouldn't pay tax when it goes into the TIRA) on it anyway due to regular backdoor, might as well roll the entire distribution into the Roth IRA in the first place. Alternately, see if you plan will take the pretax back as a rollover from a TIRA.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Thu Oct 18, 2018 3:45 pm

So I pay no taxes when it goes from "after tax" portion of my 401k into my tIRA. But then I would pay taxes on those earnings when they go from my tIRA into my Roth correct? So I see why you are saying just pass directly to Roth from the "after tax" 401k. OR I could then tx the tIRA earnings (from 401k) back into the 401k right? Going to talk to my accountant about all this...

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Thu Oct 18, 2018 3:50 pm

krafty81 wrote:
Thu Oct 18, 2018 3:45 pm
So I pay no taxes when it goes from "after tax" portion of my 401k into my tIRA. But then I would pay taxes on those earnings when they go from my tIRA into my Roth correct? So I see why you are saying just pass directly to Roth from the "after tax" 401k. OR I could then tx the tIRA earnings (from 401k) back into the 401k right? Going to talk to my accountant about all this...
First find out if the plan will split the rollover into after-tax and earnings. That helps determine what you can do.

Note that many accountants are unfamiliar with this and you might not get good advice. Many of us have been doing this for years and give you practical advice.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

krafty81
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Re: Mega Backdoor Roth Mechanics

Post by krafty81 » Thu Oct 18, 2018 7:49 pm

Called my company benefits guy today - he said I was the third person who had asked him about a Mega-Roth! Turns out they will do just one transfer per year. So I will probably just keep it simple and send the whole amount to my Roth and pay whatever small amount of tax I owe. At the end of 19.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Mon Oct 22, 2018 6:58 pm

If your after tax 401k contribution loses money prior to rolling into Roth IRA, can you take a deduction on your fed income tax for the loss amount? Like a tax loss harvest kinda thing?

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Re: Mega Backdoor Roth Mechanics

Post by whodidntante » Mon Oct 22, 2018 7:00 pm

Xanadu wrote:
Mon Oct 22, 2018 6:58 pm
If your after tax 401k contribution loses money prior to rolling into Roth IRA, can you take a deduction on your fed income tax for the loss amount? Like a tax loss harvest kinda thing?
No. But you also wouldn't owe any tax when you convert it to a Roth.

I stage my after tax contributions in a stable value fund.

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whodidntante
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Re: Mega Backdoor Roth Mechanics

Post by whodidntante » Mon Oct 22, 2018 7:03 pm

krafty81 wrote:
Thu Oct 18, 2018 7:49 pm
Called my company benefits guy today - he said I was the third person who had asked him about a Mega-Roth! Turns out they will do just one transfer per year. So I will probably just keep it simple and send the whole amount to my Roth and pay whatever small amount of tax I owe. At the end of 19.
I spoke to the actual 401k administrator at my medium sized corp. I got the distinct impression that I am the only one doing after tax contributions.

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 5:34 am

Xanadu wrote:
Mon Oct 22, 2018 6:58 pm
If your after tax 401k contribution loses money prior to rolling into Roth IRA, can you take a deduction on your fed income tax for the loss amount? Like a tax loss harvest kinda thing?
We have had one poster say the 401k administrator kept up with the loss and applied it against taxable income in a future rollover.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Tue Oct 23, 2018 8:36 am

I’m totally kicking myself for not looking into the Mega Backdoor Roth earlier. I remember a couple years ago I tried asking my HR department, but they told me I couldn’t do after tax contributions (wrong!). Well, now that I’m looking into the fine print of our 401k plan, not only does it offer after tax contributions with in-service rollover option, but my employer will match me dollar for dollar on the fist 3% of my after tax contribution. That is in addition to the 4% match on my pre-tax contribution! So basically I’ve been missing out on free money for the past several years :oops:

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 8:43 am

Xanadu wrote:
Tue Oct 23, 2018 8:36 am
...but my employer will match me dollar for dollar on the fist 3% of my after tax contribution. That is in addition to the 4% match on my pre-tax contribution!
That sounds pretty unusual. Are you sure there is not a limit on this? I would have thought if you are getting a full 4% match on your elective deferrals (the whole $18.5k), that would be all you would get.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Tue Oct 23, 2018 8:54 am

retiredjg wrote:
Tue Oct 23, 2018 8:43 am
Xanadu wrote:
Tue Oct 23, 2018 8:36 am
...but my employer will match me dollar for dollar on the fist 3% of my after tax contribution. That is in addition to the 4% match on my pre-tax contribution!
That sounds pretty unusual. Are you sure there is not a limit on this? I would have thought if you are getting a full 4% match on your elective deferrals (the whole $18.5k), that would be all you would get.
That is how I'm reading it....

Company Match On Pre-Tax Contributions
The Company Match will be 100% on the fist 4% of compensation you contribute; however,
Catch-up contributions are not matched by the Company.

After-Tax Contributions
You may make After-tax contributions of up to 14% of your base salary, including commissions
but excluding overtime and bonuses. Under current Federal law, the total After-tax contribution
amount of some highly-paid participants may be limited.
Your contributions will be made automatically through regular payroll deductions.

Company Match On After-Tax Contributions
The Company will match your After-tax contributions dollar for dollar on the first 3% of
compensation you contribute.

Both Pre-Tax And After-Tax Contributions
You may contribute on a Pre-tax basis or on an After-tax basis, or a combination of both.
However, the total of your combined Pre-tax regular deferrals and After-tax contributions
(subject to the maximum dollar limits described above) cannot exceed 50% of your
compensation. In addition, your After-tax contributions are limited to 14% of your
compensation. If you contribute both Pre-tax and After-tax, the corresponding Company Match
on the first 4% of compensation you contribute will apply to your Pre-tax contributions only. If
you are eligible to make Catch-up contributions, the amount of your regular deferrals (Pre-tax
and After-tax) and Catch-up contributions cannot be more than 75% of your compensation.


I guess I will find out for sure this Friday when I get my next pay check :D

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 9:16 am

Hmm. The first part does sound exactly like what you said. But the last paragraph is concerning. I'm not sure what it means. It almost sounds like they are using the term after-tax to mean Roth.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Tue Oct 23, 2018 9:41 am

retiredjg wrote:
Tue Oct 23, 2018 9:16 am
Hmm. The first part does sound exactly like what you said. But the last paragraph is concerning. I'm not sure what it means. It almost sounds like they are using the term after-tax to mean Roth.
I agree it is a bit confusing how they word it. But the only options in the plan are pre-tax contributions and after tax contributions. There is no “Roth 401k” mentioned anywhere in the plan.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Tue Oct 23, 2018 9:45 am

So are the earnings on after tax contributions taxable while they are still within the 401k account? Or does the tax get triggered only when I make the conversion to my Roth IRA?

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 10:12 am

Xanadu wrote:
Tue Oct 23, 2018 9:41 am
retiredjg wrote:
Tue Oct 23, 2018 9:16 am
Hmm. The first part does sound exactly like what you said. But the last paragraph is concerning. I'm not sure what it means. It almost sounds like they are using the term after-tax to mean Roth.
I agree it is a bit confusing how they word it. But the only options in the plan are pre-tax contributions and after tax contributions. There is no “Roth 401k” mentioned anywhere in the plan.
OK. Can't say I've ever heard of a plan that allows traditional and after-tax contributions that does not also have a designated Roth option.

Why don't you let us know what you find out about this so we can all learn something.

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 10:13 am

Xanadu wrote:
Tue Oct 23, 2018 9:45 am
So are the earnings on after tax contributions taxable while they are still within the 401k account? Or does the tax get triggered only when I make the conversion to my Roth IRA?
No taxes until it is converted to Roth IRA. And that could be avoided by rolling the earnings to tIRA instead.

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Earl Lemongrab
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Re: Mega Backdoor Roth Mechanics

Post by Earl Lemongrab » Tue Oct 23, 2018 10:47 am

retiredjg wrote:
Tue Oct 23, 2018 10:12 am
OK. Can't say I've ever heard of a plan that allows traditional and after-tax contributions that does not also have a designated Roth option.
Oh, Megacorp was that way for a long time. They've had after-tax since at least 2007, when I became aware of it, probably a lot longer. They only added Roth a few years ago.
This week's fortune cookie: "Your financial life will be secure and beneficial." So I got that going for me, which is nice.

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 3:21 pm

Well, I guess now I've heard of 2. :happy

pyld76
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Re: Mega Backdoor Roth Mechanics

Post by pyld76 » Tue Oct 23, 2018 5:25 pm

retiredjg wrote:
Tue Oct 23, 2018 10:12 am

OK. Can't say I've ever heard of a plan that allows traditional and after-tax contributions that does not also have a designated Roth option.

Why don't you let us know what you find out about this so we can all learn something.
Data point of two. MyMegaCorp has trad and after-tax components. No designated Roth option.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Tue Oct 23, 2018 6:29 pm

retiredjg wrote:
Tue Oct 23, 2018 10:12 am
Xanadu wrote:
Tue Oct 23, 2018 9:41 am
retiredjg wrote:
Tue Oct 23, 2018 9:16 am
Hmm. The first part does sound exactly like what you said. But the last paragraph is concerning. I'm not sure what it means. It almost sounds like they are using the term after-tax to mean Roth.
I agree it is a bit confusing how they word it. But the only options in the plan are pre-tax contributions and after tax contributions. There is no “Roth 401k” mentioned anywhere in the plan.
OK. Can't say I've ever heard of a plan that allows traditional and after-tax contributions that does not also have a designated Roth option.

Why don't you let us know what you find out about this so we can all learn something.
I emailed my benefits department to ask. They said I would only get the 4% match on the pre-tax contribution.

After re-reading it again, I thing the following sentence is where this is addressed:

If you contribute both Pre-tax and After-tax, the corresponding Company Match
on the first 4% of compensation you contribute will apply to your Pre-tax contributions only.


Then again, it’s also possible that HR doesn’t know what they are talking about. Guess I’ll find out for sure on Friday.

retiredjg
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Re: Mega Backdoor Roth Mechanics

Post by retiredjg » Tue Oct 23, 2018 6:35 pm

Xanadu wrote:
Tue Oct 23, 2018 6:29 pm
I emailed my benefits department to ask. They said I would only get the 4% match on the pre-tax contribution.
I suspected as much.
After re-reading it again, I thing the following sentence is where this is addressed:

If you contribute both Pre-tax and After-tax, the corresponding Company Match
on the first 4% of compensation you contribute will apply to your Pre-tax contributions only.
Like I said, that paragraph was hard to understand. Do let us know what you find out.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Thu Oct 25, 2018 8:25 am

^
Guess I will need to wait another 2 weeks to find out. Looks like the updates I just made to my aftertax contribution hasn’t been applied to payroll yet.

Xanadu
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Re: Mega Backdoor Roth Mechanics

Post by Xanadu » Thu Nov 08, 2018 8:54 am

No dice on the additional 3% match. Rats!

sailaway
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Re: Mega Backdoor Roth Mechanics

Post by sailaway » Thu Nov 08, 2018 9:09 am

Xanadu wrote:
Thu Nov 08, 2018 8:54 am
No dice on the additional 3% match. Rats!
Last year megacorp mentioned after tax contributions in their open enrollment benefits pamphlet. Just reading the summaries, it wasn't hard to imagine we would get a match, but alas, no. Evidently, after tax was too popular anyway: this year's benefit pamphlet informs us that there will now be a $25 in service withdrawal fee.

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