Convert Employer Match portion of 401(k) to Roth 401(k)?

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IsItWinterYet
Posts: 8
Joined: Wed Mar 21, 2018 9:42 am

Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by IsItWinterYet » Wed Nov 07, 2018 12:37 pm

All,

I have been considering converting the employer match portion of my 401(k) to Roth within my plan. It is a 4 figure amount I am considering.

To help with the decision:

I have 6+ months of emergency funds in a savings account.

4 figure amount of student loans (at weighted average 3.1%) which I plan to wipe out before the end of 2018.

Contributing to Roth 401(k) and meeting the minimum threshold to receive the entire employer match.

Maxed out Roth IRA.

Single tax filing.

22% Federal Tax Bracket.

VA resident so 5.75% State Tax Bracket.

Age: 24.5

Pro: better wealth growth opportunities in the Roth. Currently in the 22% which is better than the old 25% tax bracket with hopes of income going up in the future. essentially no gains this year so the taxable event is on the dollars alone as opposed to the dollars+gains.

Con: creates taxable event.

Am I missing anything in my pro/con list?

If I convert now, will I be able to convert again next year? Are there any other negative implications for doing this?

What would you do if you were in my shoes?

Best,
Is It Winter Yet (almost time to break out the snowboard!)
Last edited by IsItWinterYet on Wed Nov 07, 2018 12:56 pm, edited 1 time in total.

retiredjg
Posts: 34181
Joined: Thu Jan 10, 2008 12:56 pm

Re: Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by retiredjg » Wed Nov 07, 2018 12:48 pm

If you are considering converting the employer match portion, my guess is that you are using Roth 401k instead of traditional 401k for your own contributions. If yes, I think you should NOT convert the match. It is good to have both pre-tax and post-tax money for retirement.


On the other hand, If you are just starting a lucrative career and expect your tax bracket to go up sharply and stay up for a long time, getting as much as you can into Roth at only 22% might be a good choice.

IsItWinterYet
Posts: 8
Joined: Wed Mar 21, 2018 9:42 am

Re: Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by IsItWinterYet » Wed Nov 07, 2018 1:02 pm

retiredjg wrote:
Wed Nov 07, 2018 12:48 pm
If you are considering converting the employer match portion, my guess is that you are using Roth 401k instead of traditional 401k for your own contributions.
Yes I contribute to a Roth 401(k) and I have revised my OP.

I have a mechanical engineering degree and work in the construction industry. One more promotion will probably bump me into the 24% federal tax bracket.

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FiveK
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Joined: Sun Mar 16, 2014 2:43 pm

Re: Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by FiveK » Wed Nov 07, 2018 6:54 pm

IsItWinterYet wrote:
Wed Nov 07, 2018 12:37 pm
Am I missing anything in my pro/con list?
Under current law, it would take ~$1.25 million in traditional accounts for a 4% withdrawal rate to get beyond the 12% bracket.

If you can save 22% now, you might consider doing so until you expect to have that $1.25 million in traditional accounts when you retire.

You could also do all Roth now, and figure on making up that traditional amount later - the choice is yours.

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Thrifty Femme
Posts: 329
Joined: Sun Apr 12, 2015 1:54 pm

Re: Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by Thrifty Femme » Fri Nov 09, 2018 5:09 pm

Have you verified you can do this? I didn't think employer contribution could be converted to Roth.

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HueyLD
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Joined: Mon Jan 14, 2008 10:30 am

Re: Convert Employer Match portion of 401(k) to Roth 401(k)?

Post by HueyLD » Fri Nov 09, 2018 5:38 pm

The IRS says:

"Can my employer match my designated Roth contributions? Must my employer allocate the matching contributions to a designated Roth accounts?

Yes, your employer can make matching contributions on your designated Roth contributions. However, your employer can only allocate your designated Roth contributions to your designated Roth account. Your employer must allocate any contributions to match designated Roth contributions into a pre-tax account, just like matching contributions on traditional, pre-tax elective contributions.

What amounts may I roll over in an in-plan Roth rollover?

If your plan allows it, you can roll over any vested plan balance, including earnings, to a designated Roth account, even if these amounts can’t be distributed to you. You can make an in-plan Roth rollover of:

elective deferrals,
matching contributions (including qualified matching contributions),
nonelective contributions (including qualified nonelective contributions),
rollover contributions,
after-tax employee contributions and
earnings on the above contributions.

The plan can specify which of these amounts are eligible for in-plan Roth rollovers and how often these rollovers can be done. "

https://www.irs.gov/retirement-plans/re ... h-accounts



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