How to *actually* set up Mega Backdoor Roth

[UserOne1]

Looking at our finances for 2023 we are able to save enough to complete a Mega Backdoor Roth conversion BUT I'm not sure of the steps. Everything I've read online says it depends on the 401K your employer has set up, but what exactly does that mean.

Should I start by reaching out to HR to see if it's possible or is it better to go with a personal financial advisor?

I would love to hear from anyone who has actually set one up and the steps you took to complete getting this amazing account going

[Silk McCue]

Welcome to the forum!

Have you read our Wiki?

https://www.bogleheads.org/wiki/Mega-backdoor_Roth

Cheers

[H-Town]

Looking at our finances for 2023 we are able to save enough to complete a Mega Backdoor Roth conversion BUT I'm not sure of the steps. Everything I've read online says it depends on the 401K your employer has set up, but what exactly does that mean.

Should I start by reaching out to HR to see if it's possible or is it better to go with a personal financial advisor?

I would love to hear from anyone who has actually set one up and the steps you took to complete getting this amazing account going

Yeah I set it up. Just follow instruction to call a phone number and speak to a customer rep at Fidelity.

If you have to ask whether your employer has a mega back door Roth or not, it’s probably that your employer doesn’t have one. That, or you never read emails pertaining to your employer plan.

[riverant]

Looking at our finances for 2023 we are able to save enough to complete a Mega Backdoor Roth conversion BUT I'm not sure of the steps. Everything I've read online says it depends on the 401K your employer has set up, but what exactly does that mean.

Should I start by reaching out to HR to see if it's possible or is it better to go with a personal financial advisor?

I would love to hear from anyone who has actually set one up and the steps you took to complete getting this amazing account going

Your employer needs to allow after tax contributions to the 401k. Your employer needs to allow in service withdrawals (non-hardship). If those conditions are met, you simply contribute after tax dollars and call up your plan administrator and say “I’d like to make an in service withdrawal from the after tax portion of my 401k into my Roth IRA.”

It helps if both accounts are at the same custodian (eg Fidelity). Do not call your benefits center or 401k custodian and mention “mega backdoor Roth”. That’s a nickname that they will not admit to knowing about. Mention the terms I noted above only.

[Doctor Rhythm]

My mega-public university allows this via a 401(a) account, which is managed by Fidelity. The account had a mix of pre-tax contributions, post-tax contributions, and unrealized capital gains, which were tracked separately. The rollover involved opening new Roth and tIRA accounts with Fidelity. After-tax contributions were then transferred to the Roth and gains were transferred to the tIRA. Pre-tax contributions were left in the 401(a). It obviously would have been simpler if the 401(a) didn’t have pre-tax contributions.

There wasn’t an easy way to do this on-line, so I met with the Fidelity representative/advisor assigned to my employer, and had them create the new accounts and request the rollover. In fact, the back door Roth provision seemed to be a bit Fight Club; some employees know about it, but it’s barely mentioned by HR.

[invest4]

Based upon my experience:

* Speak with your plan provider about how it works for your specific plan…there is no substitute

- You may be limited on how many conversions you can do in a year

- Your conversions may be automated or require a paper form to be submitted

- You want to make sure it is well understood that you are only making a conversion for after-tax only

- First line reps may have no experience with the process

- You will be taxed on any after tax earnings before you convert. This is not usually a big deal…you just need to be aware.

- You need to educate yourself to help everyone involved avoid mistakes. While they can usually be fixed, it can also be painful / time consuming.

- You will receive a 1099-R for taxes. You will need to make sure that it shows as ‘Rollover’ on your tax return for the portion that has been converted (not taxed). Tax software usually works fine for this…but sometimes it can be botched.


Firms have gotten better with this over the years and hopefully your conversions will be automated. It is indeed a nice benefit if you can afford it.

[Mickster99]

This topic is near and dear to my heart. Thanks for posting this question! Are there any income limits associated with the mega backdoor Roth? My plan offers after tax donations and in service withdrawals. Curious if our annual income factors into this?

[tashnewbie]

This topic is near and dear to my heart. Thanks for posting this question! Are there any income limits associated with the mega backdoor Roth? My plan offers after tax donations and in service withdrawals. Curious if our annual income factors into this?

No. But if you’re designated as a highly compensated employee by your employer, they may restrict the amount you can contribute so that the plan can pass discrimination testing. Check the MBDR wiki page for more information.

[UserOne1]

Thank you everyone for your response. I just called Fidelity and double checked and unfortunately my company doesn't allow mega backdoor roth I guess that means the money will get dumped into a brokerage account.

[Mickster99]

I called Fidelity today and used the amazing info on this forum to navigate the process. I finally got in touch with someone in their "Investment solutions" team, and he was vaguely familiar with this process. I told him I wanted to perform a non-hardship service withdrawal of after tax funds from my 401k to my Roth IRA. He replied and told me that was possible if I called in, but kept referring to this as a rollover. Anyone happen to know if that is correct? I would need to call in periodically to do this, but the long term advantages more than make up for the time on the phone. Thanks for the AWESOME feedback everyone!

[wetgear]

I called Fidelity today and used the amazing info on this forum to navigate the process. I finally got in touch with someone in their "Investment solutions" team, and he was vaguely familiar with this process. I told him I wanted to perform a non-hardship service withdrawal of after tax funds from my 401k to my Roth IRA. He replied and told me that was possible if I called in, but kept referring to this as a rollover. Anyone happen to know if that is correct? I would need to call in periodically to do this, but the long term advantages more than make up for the time on the phone. Thanks for the AWESOME feedback everyone!

Yes it’s a rollover.

[wetgear]

I called Fidelity today and used the amazing info on this forum to navigate the process. I finally got in touch with someone in their "Investment solutions" team, and he was vaguely familiar with this process. I told him I wanted to perform a non-hardship service withdrawal of after tax funds from my 401k to my Roth IRA. He replied and told me that was possible if I called in, but kept referring to this as a rollover. Anyone happen to know if that is correct? I would need to call in periodically to do this, but the long term advantages more than make up for the time on the phone. Thanks for the AWESOME feedback everyone!

That doesn’t sound right. Can you make after tax contributions?

[Doctor Rhythm]

I called Fidelity today and used the amazing info on this forum to navigate the process. I finally got in touch with someone in their "Investment solutions" team, and he was vaguely familiar with this process. I told him I wanted to perform a non-hardship service withdrawal of after tax funds from my 401k to my Roth IRA. He replied and told me that was possible if I called in, but kept referring to this as a rollover. Anyone happen to know if that is correct? I would need to call in periodically to do this, but the long term advantages more than make up for the time on the phone. Thanks for the AWESOME feedback everyone!

That’s the term - rollover. As I posted above, there is an initial “mega” rollover of after-tax contributions to a Roth. Any subsequent after tax contributions are rolled over as well, and as in your situation, I have to call in to do this.