Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

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dafioram
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by dafioram »

Soon2BXProgrammer wrote: Tue Jun 08, 2021 11:37 pm
dafioram wrote: Tue Jun 08, 2021 11:10 pm After-tax. Thoughts on adding the follow?
1.its mentioned that after-tax is like nondeductible ira. which it is but we could also add that its doesnt get included in pro rata when doing the backdoor (if after tax left in 401k.
2. As soon2bx said you can still sorta so the backdoor if you can do after tax and you are retiring soon (so you can roll out after tax and then roth convert it) or if you have some vesting requirement before having roth conversion ability in the 401k
I have the following in the taxation section of the aftertax page:
Due to the lack of deduction and ordinary income taxation, the tax characteristics are similar to a nondeductible IRA. If the money grows over long periods of time, the tax characteristics might be less favorable then investing in a taxable account. An investor might choose to to make after-tax contributions if they have a plan to convert them to Roth, ideally timing is yearly, but if an investor is leaving a company within a few years, it might still be beneficial to make contributions.
Thoughts? feedback?

I wasn't entire sure your expectations from your comment #1, please clarify.
How about a paragraph separator starting at "An Investor..." this will make the new idea stand out. Okay yeah my #1 doesn't quite make sense.
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jakehefty17
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by jakehefty17 »

LadyGeek wrote: Tue Jun 08, 2021 3:36 pm
jakehefty17 wrote: Tue Jun 08, 2021 12:56 pm I'd suggest a section early on the page for determining if your 401k plan will allow for Mega-Backdoor Roth.
I added your section to the draft page: User:LadyGeek/Mega-backdoor Roth (Does your 401(k) plan allow after-tax contributions?)

How's it look?
Looks good! Maybe change the section title line to something short and sweet like "Determine Availability". I just don't like the section being posed as a question. Same with the body of the section, change the phrasing from questions to a more informed format. The questioning sentence and the "if" sentence could be summarized as follows: To perform a Mega-backdoor Roth, your employer 401k plan must allow for two things: after-tax contributions and either in-plan conversions or in-service distributions. In the case of an in-service distribution, it must be allowed without a triggering event.

I'm nitpicking my own words now but it feels different reading it on the wiki compared to trying to discuss it on a forum post!

The supporting paragraph has filled out nicely. I like the emphasis on understanding the rules of your plan. The use of proper nomenclature of in-plan conversions vs in-service distributions is a definite enhancement. I also appreciate the additions that explain the pros and cons of each method.
Last edited by jakehefty17 on Wed Jun 09, 2021 7:05 am, edited 1 time in total.
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retiredjg
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

okwriter wrote: Tue Jun 08, 2021 9:37 pm There was some support for having a separate after-tax 401k page, so I made an edit to the other draft. I think it incorporates the comments.

User:LadyGeek/Mega-backdoor Roth
This one looks very good to me. A few comments.

1. "The backdoor and mega-backdoor Roths
The mega-backdoor Roth should not be confused with the backdoor Roth, a similarly titled but entirely different technique that also allows you to fund a Roth account in excess of normal contribution limits."

2. Agree with Soon2BX that lines 16a and 16b are incorrect. I also think the line numbers have been changing as the form has changed. Not sure how to state where to put it if the lines change.

3. Agree with Soon2BX that the 1986 info should be added. Pre-1986 has completely different rules. Does not need to be detailed but does need to be noted somewhere.

4. Agree with Soon 2BX that the notice allowing splitting distributions should be in there somewhere.

5. I think someone mentioned removing the line in the introduction about mega and backdoor being different - I suggest leaving it. It is short and not distracting and I think many people skip over the headlines at the top.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by Soon2BXProgrammer »

retiredjg wrote: Wed Jun 09, 2021 6:53 am 3. Agree with Soon2BX that the 1986 info should be added. Pre-1986 has completely different rules. Does not need to be detailed but does need to be noted somewhere.

4. Agree with Soon 2BX that the notice allowing splitting distributions should be in there somewhere.
i tried to address these two items in the "taxation" section on this page:

https://www.bogleheads.org/wiki/User:La ... 401%28k%29

let me know your thoughts.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

^^^ In human readable format: User:LadyGeek/After-tax 401(k) *

I like the update, but can't tell if there's anything missing and will defer to the experts.

* Here's how: Re: Linking wiki articles into forum posts and the following post.
jakehefty17 wrote: Wed Jun 09, 2021 6:02 am Looks good! Maybe change the section title line to something short and sweet like "Determine Availability". I just don't like the section being posed as a question. Same with the body of the section, change the phrasing from questions to a more informed format. The questioning sentence and the "if" sentence could be summarized as follows: To perform a Mega-backdoor Roth, your employer 401k plan must allow for two things: after-tax contributions and either in-plan conversions or in-service distributions. In the case of an in-service distribution, it must be allowed without a triggering event.

I'm nitpicking my own words now but it feels different reading it on the wiki compared to trying to discuss it on a forum post!

The supporting paragraph has filled out nicely. I like the emphasis on understanding the rules of your plan. The use of proper nomenclature of in-plan conversions vs in-service distributions is a definite enhancement. I also appreciate the additions that explain the pros and cons of each method.
Since your post, that section has been overhauled by a few wiki editors. I changed the section title to "Determining eligibility for after-tax contributions".

Here's the latest: User:LadyGeek/Mega-backdoor Roth
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

Soon2BXProgrammer wrote: Wed Jun 09, 2021 8:23 am
retiredjg wrote: Wed Jun 09, 2021 6:53 am 3. Agree with Soon2BX that the 1986 info should be added. Pre-1986 has completely different rules. Does not need to be detailed but does need to be noted somewhere.

4. Agree with Soon 2BX that the notice allowing splitting distributions should be in there somewhere.
i tried to address these two items in the "taxation" section on this page:

https://www.bogleheads.org/wiki/User:La ... 401%28k%29

let me know your thoughts.
Seems fine to me.

"An investor might choose to to make after-tax contributions if they have a plan to convert them to Roth". :D
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

LadyGeek wrote: Wed Jun 09, 2021 8:36 am Since your post, that section has been overhauled by a few wiki editors. I changed the section title to "Determining eligibility for after-tax contributions".

Here's the latest: User:LadyGeek/Mega-backdoor Roth
This change is not quite right. It is not about determining if a person is eliglble to contribute to the after-tax account. It is about whether the plan offers the two things needed to do the mega-backdoor process.
dafioram
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by dafioram »

Does anyone know the risk with contributing to a megaback door as a HCE? Is the return of excess as a HCE likely? Less likely for bigger companies? When is this excess returned? End of the year? Early next year? This is a potential lmitation to mega backdoor for HCEs.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by jakehefty17 »

retiredjg wrote: Wed Jun 09, 2021 8:48 am
LadyGeek wrote: Wed Jun 09, 2021 8:36 am Since your post, that section has been overhauled by a few wiki editors. I changed the section title to "Determining eligibility for after-tax contributions".

Here's the latest: User:LadyGeek/Mega-backdoor Roth
This change is not quite right. It is not about determining if a person is eliglble to contribute to the after-tax account. It is about whether the plan offers the two things needed to do the mega-backdoor process.
Agreed. Eligibility and availability are different in this regard, since one can potentially contribute to an after-tax 401k without the availability of in-service conversions or distributions. The title of the section should reflect that (since it's the entire point of the section).

I like that the Mega-backdoor Roth is referenced as a strategy... I was thinking "process" but strategy has a certain ring to it. The supporting paragraph was strong, but I don't mind it being broken up into sections as it has been. I'm sure there will be more elaboration on each method as members continue to contribute.

It would be prudent to add a disclaimer at the beginning of the section that "The Mega-backdoor Roth strategy is not supported by all 401k plans. The plan must support both after-tax contributions and in-service conversion or distributions." - followed immediately with the existing sentence regarding the 401k documentation spelling it out, and the reference to a triggering event.

At that point you could probably remove what's left of my post references, regarding 401k plans that don't support the Mega-backdoor Roth and examples of potential restrictions. That information is quickly becoming overkill/bloat/of limited use, as the section has expanded.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

retiredjg wrote: Wed Jun 09, 2021 8:48 am This change is not quite right. It is not about determining if a person is eliglble to contribute to the after-tax account. It is about whether the plan offers the two things needed to do the mega-backdoor process.
jakehefty17 wrote: Wed Jun 09, 2021 9:32 am Agreed. Eligibility and availability are different in this regard, since one can potentially contribute to an after-tax 401k without the availability of in-service conversions or distributions. The title of the section should reflect that (since it's the entire point of the section).
I've made these edits and renamed the section to "Determining if your plan supports the mega-backdoor Roth". How does it look?
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

retiredjg wrote: Wed Jun 09, 2021 6:53 am 1. "The backdoor and mega-backdoor Roths
The mega-backdoor Roth should not be confused with the backdoor Roth, a similarly titled but entirely different technique that also allows you to fund a Roth account in excess of normal contribution limits."
I'm not getting the exact issue here. Would you prefer changing "contribution limits" to "income-based contribution limits"?
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

okwriter wrote: Wed Jun 09, 2021 10:26 am
retiredjg wrote: Wed Jun 09, 2021 8:48 am This change is not quite right. It is not about determining if a person is eliglble to contribute to the after-tax account. It is about whether the plan offers the two things needed to do the mega-backdoor process.
jakehefty17 wrote: Wed Jun 09, 2021 9:32 am Agreed. Eligibility and availability are different in this regard, since one can potentially contribute to an after-tax 401k without the availability of in-service conversions or distributions. The title of the section should reflect that (since it's the entire point of the section).
I've made these edits and renamed the section to "Determining if your plan supports the mega-backdoor Roth". How does it look?
That part looks good to me. I didn't read the entire page again.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

okwriter wrote: Wed Jun 09, 2021 10:32 am
retiredjg wrote: Wed Jun 09, 2021 6:53 am 1. "The backdoor and mega-backdoor Roths
The mega-backdoor Roth should not be confused with the backdoor Roth, a similarly titled but entirely different technique that also allows you to fund a Roth account in excess of normal contribution limits."
I'm not getting the exact issue here. Would you prefer changing "contribution limits" to "income-based contribution limits"?
As I understand it, the contribution limit for IRA (direct or backdoor) is $6k/$7k. The backdoor does not allow you to put in money in excess of that contribution limit (which is what the part in blue says to me).

The backdoor does allow a person to get around the usual income limit. I think "income-based contribution limits" is works.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by nolesrule »

LadyGeek wrote: Tue Jun 08, 2021 5:58 pm Perhaps, but we need to follow Wikipedia guidelines for page and section titles. See: Wikipedia:Manual of Style - Wikipedia (Capital letters)
Wikipedia article titles and section headings use sentence case, not title case;
For consistency, it's best to stick with one convention.
I'm going to put forth the argument that Mega Backdoor Roth is a proper noun at this point in time and we already treat it that way in the wiki. In sentence case proper nouns are always capitalized.

If you look in the body of the Backdoor Roth article, you will see that Backdoor Roth and Mega Backdoor Roth are capitalized as proper nouns.... although I will note that there are some uncapitalized uses of the word 'backdoor".
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by jakehefty17 »

okwriter wrote: Wed Jun 09, 2021 10:26 am
retiredjg wrote: Wed Jun 09, 2021 8:48 am This change is not quite right. It is not about determining if a person is eliglble to contribute to the after-tax account. It is about whether the plan offers the two things needed to do the mega-backdoor process.
jakehefty17 wrote: Wed Jun 09, 2021 9:32 am Agreed. Eligibility and availability are different in this regard, since one can potentially contribute to an after-tax 401k without the availability of in-service conversions or distributions. The title of the section should reflect that (since it's the entire point of the section).
I've made these edits and renamed the section to "Determining if your plan supports the mega-backdoor Roth". How does it look?
Looks good to me. Thanks!
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

nolesrule wrote: Wed Jun 09, 2021 11:41 am
LadyGeek wrote: Tue Jun 08, 2021 5:58 pm Perhaps, but we need to follow Wikipedia guidelines for page and section titles. See: Wikipedia:Manual of Style - Wikipedia (Capital letters)
Wikipedia article titles and section headings use sentence case, not title case;
For consistency, it's best to stick with one convention.
I'm going to put forth the argument that Mega Backdoor Roth is a proper noun at this point in time and we already treat it that way in the wiki. In sentence case proper nouns are always capitalized.

If you look in the body of the Backdoor Roth article, you will see that Backdoor Roth and Mega Backdoor Roth are capitalized as proper nouns.... although I will note that there are some uncapitalized uses of the word 'backdoor".
I'm going to put forth a counter-argument that Mega Backdoor Roth should be instead be Mega-backdoor Roth.

First, Roth is the name of the US senator who created the account type (See: Roth IRA). Names are always capitalized.

Next, "Mega" is an SI unit prefix meaning Million. See: Mega- and note that Wikipedia (what we follow) uses a "-" in the page title. (I'm an engineer and couldn't let that one go...)

In the context of this article, it means "large" or an aggregate and applies to the "backdoor" process, not the Roth itself. This creates a compound word as "Mega-backdoor Roth" (not as "Mega backdoor-Roth").

Per Wikipedia capitalization, sentence case is used and it's therefore "Mega-backdoor Roth".

We can fix the mention in Backdoor Roth once we replace the "live" After-tax 401(k) page with the updated content.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by fyre4ce »

I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
Last edited by fyre4ce on Wed Jun 09, 2021 3:22 pm, edited 1 time in total.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by Soon2BXProgrammer »

fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content and add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
I didn't check the wiki, but if there isn't a link, we should include one to https://thefinancebuff.com/solo-401k-fo ... yment.html or the spreadsheet that Harry created. It is one of the best for helping people calculate aftertax contributions.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by nolesrule »

LadyGeek wrote: Wed Jun 09, 2021 2:59 pm I'm going to put forth a counter-argument that Mega Backdoor Roth should be instead be Mega-backdoor Roth.

First, Roth is the name of the US senator who created the account type (See: Roth IRA). Names are always capitalized.

Next, "Mega" is an SI unit prefix meaning Million. See: Mega- and note that Wikipedia (what we follow) uses a "-" in the page title. (I'm an engineer and couldn't let that one go...)

In the context of this article, it means "large" or an aggregate and applies to the "backdoor" process, not the Roth itself. This creates a compound word as "Mega-backdoor Roth" (not as "Mega backdoor-Roth").

Per Wikipedia capitalization, sentence case is used and it's therefore "Mega-backdoor Roth".

We can fix the mention in Backdoor Roth once we replace the "live" After-tax 401(k) page with the updated content.
That's a fair counter argument as a grammatical exercise, however I would continue to argue that Mega Backdoor Roth as a proper noun is the common widely-accepted usage. Bogleheads did not coin the phrase so cannot be the arbiter of it. A google search (while not authoritative) for "Mega-backdoor Roth" returns results that are "Mega Backdoor Roth" from all sorts of sources.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

LadyGeek wrote: Wed Jun 09, 2021 2:59 pm
nolesrule wrote: Wed Jun 09, 2021 11:41 am
LadyGeek wrote: Tue Jun 08, 2021 5:58 pm Perhaps, but we need to follow Wikipedia guidelines for page and section titles. See: Wikipedia:Manual of Style - Wikipedia (Capital letters)
Wikipedia article titles and section headings use sentence case, not title case;
For consistency, it's best to stick with one convention.
I'm going to put forth the argument that Mega Backdoor Roth is a proper noun at this point in time and we already treat it that way in the wiki. In sentence case proper nouns are always capitalized.

If you look in the body of the Backdoor Roth article, you will see that Backdoor Roth and Mega Backdoor Roth are capitalized as proper nouns.... although I will note that there are some uncapitalized uses of the word 'backdoor".
I'm going to put forth a counter-argument that Mega Backdoor Roth should be instead be Mega-backdoor Roth.

First, Roth is the name of the US senator who created the account type (See: Roth IRA). Names are always capitalized.

Next, "Mega" is an SI unit prefix meaning Million. See: Mega- and note that Wikipedia (what we follow) uses a "-" in the page title. (I'm an engineer and couldn't let that one go...)

In the context of this article, it means "large" or an aggregate and applies to the "backdoor" process, not the Roth itself. This creates a compound word as "Mega-backdoor Roth" (not as "Mega backdoor-Roth").

Per Wikipedia capitalization, sentence case is used and it's therefore "Mega-backdoor Roth".

We can fix the mention in Backdoor Roth once we replace the "live" After-tax 401(k) page with the updated content.
I would have to agree with Lady Geek.

Mega is not a noun. It is an adjective. Mega backdoor-Roth is just wrong (although I don't believe anyone suggested that one). Mega Backdoor Roth is kind of ok for the reasons given, but Mega-backdoor Roth is probably closest to correct in my opinion.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
I wonder if it's worth creating a separate page for "Mega-backdoor Roth with Solo 401(k)", which can go into details. It could be summarized and linked to in the "Mega-backdoor Roth" page's Solo 401(k) section.

(This would be similar to "401(k)" and "Solo 401(k)", which are separate pages. Although there currently isn't a section for the latter in the former; perhaps there should.)
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by fyre4ce »

okwriter wrote: Wed Jun 09, 2021 3:28 pm
fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
I wonder if it's worth creating a separate page for "Mega-backdoor Roth with Solo 401(k)", which can go into details. It could be summarized and linked to in the "Mega-backdoor Roth" page's Solo 401(k) section.

(This would be similar to "401(k)" and "Solo 401(k)", which are separate pages. Although there currently isn't a section for the latter in the former; perhaps there should.)
Personally I would lean toward keeping them combined, because I think the strategies in the two accounts have much more in common than the accounts themselves. But I'm not hard-over on it, and if you guys want to spin it off, fine with me.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

Bear in mind that readers won't (virtually) flip back-and-forth between pages. If everything that needs to be said can be put cleanly on the new page, go for it. Otherwise, it's best to keep it all on one page.

We can put a redirect (short cut) in the wiki search box so searching for "Mega-backdoor Roth with Solo 401(k)" will show up and go to the right spot.

(We can use templates to create common wording, but it's more work and you have to remember that both pages use the same content.)
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
So sorry fyre4ce. I've got some real heartburn over this one. :(
  • Mega-Backdoor Roth capable Solo 401k plans
    None of the free Solo 401k plans from the major brokerages (E*Trade, Fidelity, Vanguard, etc.) allow after-tax contributions, and by extension the Mega-Backdoor Roth. There is a small but growing number of Solo 401k administrators that offer this feature, such as My Solo 401k and Discount Solo 401k. Fees tend to be around $500-600 for setup and $100-200 annual administration.
The providers you mentioned are not plan administrators as you stated. They are plan providers and they are giving people the impression that administering this type of plan is no big deal and that people can simply do it themselves. Somebody is going to get hurt.

Two people I trust and respect who have HR experience (tfb and spirit rider) have said this is a slippery slope indeed and have warned people against trying to do this on their own. They have both stated that people with no HR experience should be hiring a third party administrator (TPA) to administer these plans.

Perhaps you are one who has used one of these plans and have had no problem. I know there are people here doing that. That does not mean that our Wiki should give this type of plan credibility. It should not...in my opinion.

I'm not saying there should be no mention of this issue. I'm saying that if people chose to self-administer a solo plan that can facilitate the mega-backdoor, they should do so with some strong warnings that they consider hiring a TPA instead of DIY.

If any providers are mentioned by name, there should also be mention of providers who actually do provide TPA service in addition to the plan documents alone. I know Employee Fiduciary does this. There might be one more, I'm not sure.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by fyre4ce »

retiredjg wrote: Wed Jun 09, 2021 3:51 pm
fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
So sorry fyre4ce. I've got some real heartburn over this one. :(
  • Mega-Backdoor Roth capable Solo 401k plans
    None of the free Solo 401k plans from the major brokerages (E*Trade, Fidelity, Vanguard, etc.) allow after-tax contributions, and by extension the Mega-Backdoor Roth. There is a small but growing number of Solo 401k administrators that offer this feature, such as My Solo 401k and Discount Solo 401k. Fees tend to be around $500-600 for setup and $100-200 annual administration.
The providers you mentioned are not plan administrators as you stated. They are plan providers and they are giving people the impression that administering this type of plan is no big deal and that people can simply do it themselves. Somebody is going to get hurt.

Two people I trust and respect who have HR experience (tfb and spirit rider) have said this is a slippery slope indeed and have warned people against trying to do this on their own. They have both stated that people with no HR experience should be hiring a third party administrator (TPA) to administer these plans.

Perhaps you are one who has used one of these plans and have had no problem. I know there are people here doing that. That does not mean that our Wiki should give this type of plan credibility. It should not...in my opinion.

I'm not saying there should be no mention of this issue. I'm saying that if people chose to self-administer a solo plan that can facilitate the mega-backdoor, they should do so with some strong warnings that they consider hiring a TPA instead of DIY.

If any providers are mentioned by name, there should also be mention of providers who actually do provide TPA service in addition to the plan documents alone. I know Employee Fiduciary does this. There might be one more, I'm not sure.
Thanks very much for the info. I don't doubt the accuracy of what you're saying; I trust Spirit Rider and TFB enormously. My understanding was that the two businesses I linked were third party administrators - they are definitely a third party, and they (claim to) administer a Solo 401k. I wouldn't suggest anyone try to do a MBR themselves, like by opening a brokerage account, contributing there, then rolling that into a Solo 401k Roth sub-account. I thought those companies provided the necessary paperwork and services to enable a MBR legally, which seems reasonable given that that's what they advertise. If there's some deficiency with their services, can you (or Spirit Rider or TFB) be more specific about what it is? I have never used either of them, but I know that some on the forums do. I'd have to imagine if there were an IRS audit that revealed problems and there were adverse consequences to the business owner (disallowed contributions, fines, plan dissolved, etc.), that might be grounds for a civil suit against them. In any case, yes, I totally agree that if Employee Fiduciary is the only known company that provides legal MBR-capable Solo 401k's, then that's who we should mention in the wiki and no one else. Hopefully we can explore this a bit more. I am starting to shop for a MBR Solo 401k plan for next calendar year, so I have some personal interest too.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

fyre4ce wrote: Wed Jun 09, 2021 3:32 pm Personally I would lean toward keeping them combined, because I think the strategies in the two accounts have much more in common than the accounts themselves. But I'm not hard-over on it, and if you guys want to spin it off, fine with me.
If it's all in one page, it could be useful to add a brief intro for readers who may be unaware of what a Solo 401(k) is. Perhaps something like:

While the previous sections apply generally to employer plans, there are special considerations for employees who are their own employer. Self-employed individuals have access to a Solo or Individual 401(k), which they both administer and contribute to. This has a number of implications for the mega-backdoor Roth process.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by Soon2BXProgrammer »

fyre4ce wrote: Wed Jun 09, 2021 4:24 pm
Thanks very much for the info. I don't doubt the accuracy of what you're saying; I trust Spirit Rider and TFB enormously. My understanding was that the two businesses I linked were third party administrators - they are definitely a third party, and they (claim to) administer a Solo 401k. I wouldn't suggest anyone try to do a MBR themselves, like by opening a brokerage account, contributing there, then rolling that into a Solo 401k Roth sub-account. I thought those companies provided the necessary paperwork and services to enable a MBR legally, which seems reasonable given that that's what they advertise. If there's some deficiency with their services, can you (or Spirit Rider or TFB) be more specific about what it is? I have never used either of them, but I know that some on the forums do. I'd have to imagine if there were an IRS audit that revealed problems and there were adverse consequences to the business owner (disallowed contributions, fines, plan dissolved, etc.), that might be grounds for a civil suit against them. In any case, yes, I totally agree that if Employee Fiduciary is the only known company that provides legal MBR-capable Solo 401k's, then that's who we should mention in the wiki and no one else. Hopefully we can explore this a bit more. I am starting to shop for a MBR Solo 401k plan for next calendar year, so I have some personal interest too.
A TPA is a company that actually administers the plan. What MySolo401k does is sell you the plan documents. You are then acting as the TPA. This means all the legal risk is on your shoulders. (Except if the actual plan documents have an issue).
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by dafioram »

For the mega backdoor can we add a footnote for when we say early on that there is no income limitations? This may not be technically true since if you make a lot you are HCE and hence maybe have the amount you can contribute limited.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

fyre4ce wrote: Wed Jun 09, 2021 4:24 pm
retiredjg wrote: Wed Jun 09, 2021 3:51 pm
fyre4ce wrote: Wed Jun 09, 2021 3:14 pm I took my stab at adding a section about a MBR in a Solo 401k, and added a worked example showing income and payroll tax consequences. The example may be a bit much, but I figured it's easier to delete content than add it later. And, I'd expect it to be at the bottom of the page, so readers to whom it doesn't apply can just stop reading when they get there.
So sorry fyre4ce. I've got some real heartburn over this one. :(
  • Mega-Backdoor Roth capable Solo 401k plans
    None of the free Solo 401k plans from the major brokerages (E*Trade, Fidelity, Vanguard, etc.) allow after-tax contributions, and by extension the Mega-Backdoor Roth. There is a small but growing number of Solo 401k administrators that offer this feature, such as My Solo 401k and Discount Solo 401k. Fees tend to be around $500-600 for setup and $100-200 annual administration.
The providers you mentioned are not plan administrators as you stated. They are plan providers and they are giving people the impression that administering this type of plan is no big deal and that people can simply do it themselves. Somebody is going to get hurt.

Two people I trust and respect who have HR experience (tfb and spirit rider) have said this is a slippery slope indeed and have warned people against trying to do this on their own. They have both stated that people with no HR experience should be hiring a third party administrator (TPA) to administer these plans.

Perhaps you are one who has used one of these plans and have had no problem. I know there are people here doing that. That does not mean that our Wiki should give this type of plan credibility. It should not...in my opinion.

I'm not saying there should be no mention of this issue. I'm saying that if people chose to self-administer a solo plan that can facilitate the mega-backdoor, they should do so with some strong warnings that they consider hiring a TPA instead of DIY.

If any providers are mentioned by name, there should also be mention of providers who actually do provide TPA service in addition to the plan documents alone. I know Employee Fiduciary does this. There might be one more, I'm not sure.
Thanks very much for the info. I don't doubt the accuracy of what you're saying; I trust Spirit Rider and TFB enormously. My understanding was that the two businesses I linked were third party administrators - they are definitely a third party, and they (claim to) administer a Solo 401k. I wouldn't suggest anyone try to do a MBR themselves, like by opening a brokerage account, contributing there, then rolling that into a Solo 401k Roth sub-account. I thought those companies provided the necessary paperwork and services to enable a MBR legally, which seems reasonable given that that's what they advertise. If there's some deficiency with their services, can you (or Spirit Rider or TFB) be more specific about what it is? I have never used either of them, but I know that some on the forums do. I'd have to imagine if there were an IRS audit that revealed problems and there were adverse consequences to the business owner (disallowed contributions, fines, plan dissolved, etc.), that might be grounds for a civil suit against them. In any case, yes, I totally agree that if Employee Fiduciary is the only known company that provides legal MBR-capable Solo 401k's, then that's who we should mention in the wiki and no one else. Hopefully we can explore this a bit more. I am starting to shop for a MBR Solo 401k plan for next calendar year, so I have some personal interest too.
This is tricky.

As I understand it, the companies you mention provide the documents that support the mega-backdoor in a Solo 401k. They also provide updates each year to keep the documents in line with changes in law/regulations.

They do not administer the plan. I believe they are not qualified to administer the plan.

They do try to be helpful to the person who has the plan, but it is up to the business owner to administer the plan. This is beyond the capabilities of some Solo 401k owners but...they do not know it. This is a dangerous situation which could put their life savings at risk if they mess it up.

In my opinion, putting this (as written) into the Wiki without strong warnings would be a disservice to unsuspecting people who have a Solo 401k and want the mega-backdoor. It would also not be up to Boglehead standards in my opinion.

Tomorrow when I have time to search for them, I'll pull up some of the previous threads.

I don't know how to re-write this section but maybe someone else does. Until there are more providers who actually do administer the plans, I would be inclined to leave out that section.

Inclusion in our Wiki conveys some kind of dependability. I'm not comfortable with including things that are controversial unless the controversy is plainly stated and warnings are issued.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by fyre4ce »

retiredjg wrote: Wed Jun 09, 2021 4:51 pm This is tricky.

As I understand it, the companies you mention provide the documents that support the mega-backdoor in a Solo 401k. They also provide updates each year to keep the documents in line with changes in law/regulations.

They do not administer the plan. I believe they are not qualified to administer the plan.

They do try to be helpful to the person who has the plan, but it is up to the business owner to administer the plan. This is beyond the capabilities of some Solo 401k owners but...they do not know it. This is a dangerous situation which could put their life savings at risk if they mess it up.

In my opinion, putting this (as written) into the Wiki without strong warnings would be a disservice to unsuspecting people who have a Solo 401k and want the mega-backdoor. It would also not be up to Boglehead standards in my opinion.

Tomorrow when I have time to search for them, I'll pull up some of the previous threads.

I don't know how to re-write this section but maybe someone else does. Until there are more providers who actually do administer the plans, I would be inclined to leave out that section.

Inclusion in our Wiki conveys some kind of dependability. I'm not comfortable with including things that are controversial unless the controversy is plainly stated and warnings are issued.
Thanks. No argument whatsoever that we should maintain a high standard for the content that goes on the wiki, and clearly avoid suggesting courses of action to readers that could get them into trouble. Even if we suggest Employee Fiduciary as the only option, a warning banner could still be appropriate to try to dissuade readers from trying this on their own. I think this is just an area where I didn't realize there was a hidden risk. This was just a draft but I'll edit it based on your feedback.

That said, I would still like to understand a bit better what risks are at play. I understand what you and others have said that those companies don't "administer" the plan, but what exactly is involved with that, and what are the risks? I think most readers are going to be making monthly or quarterly contributions, buying and selling investments inside the sub-account, and then once or a few times per year, making the after-tax contributions and rolling them over into Roth. Would the owner be responsible for (for instance) filing a 1099-R with the IRS, if they are acting as their own administrator? I'm definitely not arguing that we should recommend people do this, but rather trying to understand the risks better so we can craft a more effective warning.

Edit: Page has been updated with a generic-sounding warning, and a link to Employee Fiduciary in place of the other two firms. We can add more detail as it becomes available.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

dafioram wrote: Wed Jun 09, 2021 8:59 am Does anyone know the risk with contributing to a megaback door as a HCE? Is the return of excess as a HCE likely? Less likely for bigger companies? When is this excess returned? End of the year? Early next year? This is a potential lmitation to mega backdoor for HCEs.
To explain, Highly Compensated Employees are at risk if their contributions exceed the plan limits. During my last year of employment (before I retired), my 401(k) contributions were limited due to this status.

See the wiki: Highly compensated employee

Yes, those contributions could have been returned to me. Yes, that is taxable income. Unless your company has a safe-harbor plan, this is what can happen.

My guess is that your employer needs to get the same dollars out of the plan as you put into the plan. If you moved funds to another account, I'm betting the company doesn't care about that and you need to come up with the money.

That's why "safe-harbor" plans exist. It's "safe" from the employee discrimination test which imposes these limits. There are trade-offs to having a safe-harbor plan, so your company may not want to go that way. My employer changed ownership a few years ago. The new company didn't have a safe-harbor 401(k), but the old company did. I lost that safe-harbor provision.

Update: okwriter is a step ahead of me. The draft page has an entry about this under "Disadvantages".
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by nolesrule »

retiredjg wrote: Wed Jun 09, 2021 3:27 pm I would have to agree with Lady Geek.

Mega is not a noun. It is an adjective. Mega backdoor-Roth is just wrong (although I don't believe anyone suggested that one). Mega Backdoor Roth is kind of ok for the reasons given, but Mega-backdoor Roth is probably closest to correct in my opinion.
My argument is that the entire phrase as a whole is a proper noun so the spelling doesn't matter. It is a name for the process. Furthermore, Bogleheads did not invent this name. WCI did. And his blog posts all use Mega Backdoor Roth. Everyone else is just borrowing it. Additionally it is already widely adopted in that format. It's not the place of the Bogleheads wiki to change it on the grounds it is grammatically incorrect (It isn't because the whole phrase is a name).

Lastly, it's bad for SEO placement to not use the common phrasing.


If I sound passionate, it's because I've coined something similar in YNAB-user circles that has stuck which is not grammatically correct. If someone is going to codify in in a third party wiki I sure as heck am going to make sure that it's spelled as intended (it includes a capitalized preposition mid-phrase).

Pardon my interruption. Thanks for listening. That's the last I'll say on the subject and let y'all get back to writing the articles which is really more important than my little rant. :sharebeer
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

LadyGeek wrote: Wed Jun 09, 2021 6:00 pm Update: okwriter is a step ahead of me. The draft page has an entry about this under "Disadvantages".
That was already there in the old page btw :). I just added a footnote. Coincidence that it happened at the same time as your post!
dafioram wrote: Wed Jun 09, 2021 4:39 pm For the mega backdoor can we add a footnote for when we say early on that there is no income limitations? This may not be technically true since if you make a lot you are HCE and hence maybe have the amount you can contribute limited.
Done.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

nolesrule wrote: Wed Jun 09, 2021 6:10 pm
retiredjg wrote: Wed Jun 09, 2021 3:27 pm I would have to agree with Lady Geek.

Mega is not a noun. It is an adjective. Mega backdoor-Roth is just wrong (although I don't believe anyone suggested that one). Mega Backdoor Roth is kind of ok for the reasons given, but Mega-backdoor Roth is probably closest to correct in my opinion.
My argument is that the entire phrase as a whole is a proper noun so the spelling doesn't matter. It is a name for the process. Furthermore, Bogleheads did not invent this name. WCI did. And his blog posts all use Mega Backdoor Roth. Everyone else is just borrowing it. Additionally it is already widely adopted in that format. It's not the place of the Bogleheads wiki to change it on the grounds it is grammatically incorrect (It isn't because the whole phrase is a name).

Lastly, it's bad for SEO placement to not use the common phrasing.


If I sound passionate, it's because I've coined something similar in YNAB-user circles that has stuck which is not grammatically correct. If someone is going to codify in in a third party wiki I sure as heck am going to make sure that it's spelled as intended (it includes a capitalized preposition mid-phrase).

Pardon my interruption. Thanks for listening. That's the last I'll say on the subject and let y'all get back to writing the articles which is really more important than my little rant. :sharebeer
I think you have a point.

This might be Jim Dahle's (whitecoatinvestor) first article and that seems to be what he named it. So maybe that is the terminology we should use, even if there is a small grammatical burp.

https://www.whitecoatinvestor.com/the-m ... -roth-ira/

I personally do not care because I think either one is OK and leave it to the Wiki editors to decide.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by Soon2BXProgrammer »

retiredjg wrote: Wed Jun 09, 2021 6:29 pm
nolesrule wrote: Wed Jun 09, 2021 6:10 pm
retiredjg wrote: Wed Jun 09, 2021 3:27 pm I would have to agree with Lady Geek.

Mega is not a noun. It is an adjective. Mega backdoor-Roth is just wrong (although I don't believe anyone suggested that one). Mega Backdoor Roth is kind of ok for the reasons given, but Mega-backdoor Roth is probably closest to correct in my opinion.
My argument is that the entire phrase as a whole is a proper noun so the spelling doesn't matter. It is a name for the process. Furthermore, Bogleheads did not invent this name. WCI did. And his blog posts all use Mega Backdoor Roth. Everyone else is just borrowing it. Additionally it is already widely adopted in that format. It's not the place of the Bogleheads wiki to change it on the grounds it is grammatically incorrect (It isn't because the whole phrase is a name).

Lastly, it's bad for SEO placement to not use the common phrasing.


If I sound passionate, it's because I've coined something similar in YNAB-user circles that has stuck which is not grammatically correct. If someone is going to codify in in a third party wiki I sure as heck am going to make sure that it's spelled as intended (it includes a capitalized preposition mid-phrase).

Pardon my interruption. Thanks for listening. That's the last I'll say on the subject and let y'all get back to writing the articles which is really more important than my little rant. :sharebeer
I think you have a point.

This might be Jim Dahle's (whitecoatinvestor) first article and that seems to be what he named it. So maybe that is the terminology we should use, even if there is a small grammatical burp.

https://www.whitecoatinvestor.com/the-m ... -roth-ira/

I personally do not care because I think either one is OK and leave it to the Wiki editors to decide.
I was doing this before Jim's post...

https://dqydj.com/mega-roth-ira-backdoor-and-loophole/ July 18th, 2012
https://www.kitces.com/blog/splitting-a ... onversion/ JULY 3, 2012
https://www.forbes.com/sites/financialf ... 5805d5cced


and before the IRS notice that Kitces references that allow splitting, people had been doing it and talking about it, but you couldn't split the distribution, because i was doing it. I have 1099-R's that predate Jim.
Last edited by Soon2BXProgrammer on Wed Jun 09, 2021 7:40 pm, edited 1 time in total.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

Not sure if you are claiming the name or just saying you did the process and described it in an article. But either way.... :D
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by Soon2BXProgrammer »

retiredjg wrote: Wed Jun 09, 2021 6:49 pm Not sure if you are claiming the name or just saying you did the process and described it in an article. But either way.... :D
There was multiple articles before Jim's that called it Mega Roth IRA Backdoor, and it also for a while didn't have a name..

I'm not 100% confident that Jim officially coined the name his website uses. My memory is hazy.

My point is.. well i'm not sure what my point is... other then maybe we should use the common term, whatever that is.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

:shock: :shock: :shock:

Well, now that we've got that part cleared up...I'm not sure it matters which term is used as long as it is not "mega backdoor-Roth".
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by docco »

It's awesome to see all the collaboration on this topic and the history as well.

I'm assuming I can just jump in and add a few comments for review as well? (P = paragraph)

P1: "in excess of normal contribution limits" --> suggest change to "in excess of normal 402(g) employee elective deferral limits (of $19.5k in 2021)"

P1: "through a strategy" --> suggest change to "through a technique". Could be a bit of a nitpick, but the MBR seems to be more of a technique than a strategy to me.

P2: "(up to $58,000 in 2021)" --> suggest change to "up to the 415(c) limit of $58,000 in 2021)" Side comment: It should be somewhat obvious that the MBR limit is actually $58k minus whatever the employee elective deferral and employer contribution number is, so in practice this ends up being something closer to $30k per year for a typical person who contributes their maximum $19.5k per year to a pretax or Roth 401(k) account. Should that be spelled out somewhere?

P2: "traditional... Roth 401(k)" --> technically I think "traditional" is one type of pretax 401k. The other type is the "safe harbor" 401k. Could be a topic of discussion.

In the "Advantages" section, it might be cleaner to split out bullets 2 & 3 differently, so that bullet 2 covers the in-plan conversion (to Roth 401(k)) and the bullet 3 covers the in-service distribution (to Roth IRA).
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

docco wrote: Wed Jun 09, 2021 7:35 pm It's awesome to see all the collaboration on this topic and the history as well.

I'm assuming I can just jump in and add a few comments for review as well? (P = paragraph)
Absolutely! If anyone reading these pages has never seen this stuff before, all the better. We want to make sure the content is understood by everyone (at least those with 401(k) plans).
docco wrote: Wed Jun 09, 2021 7:35 pm P2: "traditional... Roth 401(k)" --> technically I think "traditional" is one type of pretax 401k. The other type is the "safe harbor" 401k. Could be a topic of discussion.
OK, let's discuss. It's a matter of common usage. I've never understood what a "safe harbor" 401(k) plan was until mine was dropped in favor of one that didn't have that provision. I only had a "401(k)" plan and didn't need anything else to explain what it was.

The only time it makes a difference is if you're a Highly compensated employee and then you pay attention.

We use "traditional" and "Roth" IRA because everyone has one (or can get one) and they both end in the acronym "IRA". It used to be just "IRA" and "Roth IRA" until the Roth IRA became more popular and people started saying "traditional IRA" to indicate the difference.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by docco »

LadyGeek wrote: Wed Jun 09, 2021 8:20 pm OK, let's discuss. It's a matter of common usage. I've never understood what a "safe harbor" 401(k) plan was until mine was dropped in favor of one that didn't have that provision. I only had a "401(k)" plan and didn't need anything else to explain what it was.

The only time it makes a difference is if you're a Highly compensated employee and then you pay attention.

We use "traditional" and "Roth" IRA because everyone has one (or can get one) and they both end in the acronym "IRA". It used to be just "IRA" and "Roth IRA" until the Roth IRA became more popular and people started saying "traditional IRA" to indicate the difference.
You are absolutely correct that "traditional" is a commonly used term and most people understand that to mean the same thing as a "pretax" 401(k). So, if common usage is the primary criteria, then definitely you can continue using that and people will generally understand it to mean "the tax-equivalent of the Traditional IRA in a 401(k) plan".

But then you will run into situations like the HCE issue, and that's where the "safe harbor" plan comes into play, and as you state, this can throw some people off, because it almost sounds like yet another type special 401k perhaps. (But it really isn't, in terms of tax treatment.) I found this page to be helpful: https://www.irs.gov/retirement-plans/pl ... n-overview for further clarification. Based on my reading of this, the IRS seems to want to differentiate between "traditional" and "safe harbor" 401k plans. I suppose this can lead to a complete different set of rabbit trails, as the Roth 401(k) is commonly referred as the "designated Roth account" by the IRS.

Over time in my own usage, I tend to gravitate toward the terminology used by the IRS where possible, as I think consistency with the IRS terminology ultimately leads to less confusion. In summary, I think continuing to use "traditional 401(k)" is fine, as long as there is some understanding of this difference at some level.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by LadyGeek »

I fully agree that we should be using authoritative sources to define terminology and you make an excellent point with 401(k) Plan Overview.

It's a tough call, as I also see companies using different terminology. For example, when dealing with inherited IRAs, Vanguard says "Assume an IRA" when the IRS says "Treat as your own". (I went through this last year.)

I would also agree that these points will follow a different rabbit trail than the one we're on now and will stop here. If you see anything in the wiki that could be misleading with regards to "traditional" vs. "safe-harbor" 401(k) plans (and it's not related to this discussion), feel free to start a new thread or post in Suggestions for the Wiki.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

docco wrote: Wed Jun 09, 2021 7:35 pm P1: "in excess of normal contribution limits" --> suggest change to "in excess of normal 402(g) employee elective deferral limits (of $19.5k in 2021)"
I don't see any reason not to include this. I usually see it called "section 402(g) " or "IRC Section 402(g)" which would be the proper designation I think.

P1: "through a strategy" --> suggest change to "through a technique". Could be a bit of a nitpick, but the MBR seems to be more of a technique than a strategy to me.
I call it a "process". This is the terminology used in the backdoor Roth wiki and it conveys "doing something" rather than a "thing". I'm neutral on all these words although I agree that technique or process might be a tiny bit better than strategy.

P2: "(up to $58,000 in 2021)" --> suggest change to "up to the 415(c) limit of $58,000 in 2021)" Side comment: It should be somewhat obvious that the MBR limit is actually $58k minus whatever the employee elective deferral and employer contribution number is, so in practice this ends up being something closer to $30k per year for a typical person who contributes their maximum $19.5k per year to a pretax or Roth 401(k) account. Should that be spelled out somewhere?
Again, I see no reason not to include this but suggest using "IRC Section 415(c)".

About what is included in the limit - it is spelled out in footnote 2. I have no opinion on whether that is enough or not. Perhaps "see footnote 2 for more information" could be added. Or someone could spell it out.

P2: "traditional... Roth 401(k)" --> technically I think "traditional" is one type of pretax 401k. The other type is the "safe harbor" 401k. Could be a topic of discussion.
I'm not sure exactly which "traditional" you are thinking of here. What I see is a reference to accounts, not plans. Traditional and Roth are common terms here at Bogleheads used to refer to the contributions and which account the contributions go in and that is how I read it.

I think it would be a mistake to go down the rabbit hole.

In the "Advantages" section, it might be cleaner to split out bullets 2 & 3 differently, so that bullet 2 covers the in-plan conversion (to Roth 401(k)) and the bullet 3 covers the in-service distribution (to Roth IRA).
I'm not seeing the point you are making on this one.
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Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by retiredjg »

fyre4ce wrote: Wed Jun 09, 2021 5:29 pm That said, I would still like to understand a bit better what risks are at play. I understand what you and others have said that those companies don't "administer" the plan, but what exactly is involved with that, and what are the risks? I think most readers are going to be making monthly or quarterly contributions, buying and selling investments inside the sub-account, and then once or a few times per year, making the after-tax contributions and rolling them over into Roth. Would the owner be responsible for (for instance) filing a 1099-R with the IRS, if they are acting as their own administrator? I'm definitely not arguing that we should recommend people do this, but rather trying to understand the risks better so we can craft a more effective warning.

Edit: Page has been updated with a generic-sounding warning, and a link to Employee Fiduciary in place of the other two firms. We can add more detail as it becomes available.
I like the banner, but the word "require" is not accurate. It is not actually required, just strongly suggested by people who should know. Let me think on a substitute word.

I wish I could answer the questions you are asking. I have no HR experience and have never administered a Solo 401k plan - so I don't know many of the answers.

Spirit Rider appears to have HR knowledge but has not been around since early February. He was the most vocal critic of the "do it yourself" plans.

tfb has a lof of knowledge and experience but participates on the forum less frequently. In fact, it appears that tfb did much or all of the original research (known to us) on Solo 401ks and how to set it up for MBD. This was back in 2014 or so. Here's one link. If you search his site, there are several articles on this subject.

https://thefinancebuff.com/after-tax-co ... -401k.html

His last paragraph...."Readers not familiar with how to administer a 401k plan should go with a TPA for a modest cost. Laws and regulations are complex. There are many ways to mess up. Get professional help if you’d like to pursue this option."

If you wish further info, I suggest using the google box searching for spirit rider and tfb and Solo and mega and those 3 business names. There's lots to read.


My preference for this section of this Wiki page would be to state that Solo 401k can be set up with the MBD. State what the options are not mentioning any business names. And encourage people not familiar with the procedures to get a TPA.

Something very short and sweet that does not either lend credibility to or take credibility away from any particular business concern. People who want this thing will find that information using the google box.

When I say "what the options are" I mean....

1. Using a plan from a plan provider that does not do plan administration. This requires the business owner to be his/her own administrator. This is the option that needs the warning. (Unfortunately, this seems to be the most common option used.)

2. Using a plan from a plan provider that does not do plan administration and hiring your own third party administrator (TPA).

3. Using a plan from an establishment that provides both the plan and the plan administration. This is what Employee Fiduciary does.


Again, the reason I think this section should be short and sweet is because going into detail gives this Solo 401k "niche" a credibility that it does not yet have.

That's just my thoughts. As far as I know, I'm not Queen for a Day. :D
okwriter
Posts: 109
Joined: Mon Apr 12, 2021 2:00 pm

Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by okwriter »

docco wrote: Wed Jun 09, 2021 7:35 pm P1: "in excess of normal contribution limits" --> suggest change to "in excess of normal 402(g) employee elective deferral limits (of $19.5k in 2021)"
The first sentence actually refers to both Roth IRAs and Roth 401(k)s (“Roth account” is quite generic), so a single limit wouldn’t fit. Could add a detailed footnote if you want to get specific about the exact limits being talked about, or explain it in Advantages bullet point 1 (which is about the same limits).
It should be somewhat obvious that the MBR limit is actually $58k minus whatever the employee elective deferral and employer contribution number is, so in practice this ends up being something closer to $30k per year for a typical person who contributes their maximum $19.5k per year to a pretax or Roth 401(k) account. Should that be spelled out somewhere?
There's an After-tax 401(k) draft page with a section explaining these details and a couple of examples. It’s been linked to in P2 and footnote 2 of the MBR page, which also spells things out a bit; was this what you were looking for?
docco
Posts: 9
Joined: Fri Sep 11, 2020 7:35 am

Re: Wiki - "Mega backdoor Roth" vs. After-tax 401(k)

Post by docco »

okwriter wrote: Thu Jun 10, 2021 9:34 am There's an After-tax 401(k) draft page with a section explaining these details and a couple of examples. It’s been linked to in P2 and footnote 2 of the MBR page, which also spells things out a bit; was this what you were looking for?
Yes, that's indeed what I was looking for, thanks.
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