Mega Backdoor Roths - contribution percentages

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diydocwifejd
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Mega Backdoor Roths - contribution percentages

Post by diydocwifejd »

For contributions to mega backdoor roths (after-tax 401ks) - we have to enter in a percentage of our paycheck into Fidelity for contributions. I've searched high and low to see if I can find the answer - is that percentage supposed to be a percentage of my take home pay (post-taxes) or percentage of gross. I am unreasonably confused by the issue. Thanks!
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brawlrats
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Re: Mega Backdoor Roths - contribution percentages

Post by brawlrats »

401k contributions are made on gross salary.
cashheavy18
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Re: Mega Backdoor Roths - contribution percentages

Post by cashheavy18 »

I believe it is usually a percentage of gross pay.
sailaway
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Re: Mega Backdoor Roths - contribution percentages

Post by sailaway »

Gross pay. Except, if you put in too high of a number, they will take premiums and taxes and just contribute the remainder.
Radiata
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Re: Mega Backdoor Roths - contribution percentages

Post by Radiata »

Practically, it's hard to figure out what percentage to use to get up to the $61k total limit (2022) or $66k this year (2023) with all the deductions, taxes, etc. The way I do it is to keep a spreadsheet and keep a running tally of the total amount that goes in, based on how much actually gets contributed each check from both me and my employer based on a certain gross pay % setting. You can project out the total contribution amount for the year based on the number of paychecks remaining and whatever the last contribution amount was. If the projection is a little over or under, you can change the percentage and recalculate after the next paycheck/contribution. This works best if you have a consistent pay amount going in every pay period, and could be more troublesome if you have a variable pay situation. I used this to good effect last year and contributed $60,500 total to my 401k, staying a little under for comfort's sake.
sailaway wrote: Fri Jan 20, 2023 1:12 pm Gross pay. Except, if you put in too high of a number, they will take premiums and taxes and just contribute the remainder.
I did this the first year I realized I could do MBD Roth, which was late in the year. I cranked up the contribution amount on Fidelity to the max of 75% and received nothing for take home pay. My company mailed me a pay stub showing the $0, along with all the premiums and taxes, which I thought was funny. This must be a special rule they have, given that I usually do direct deposit and not a physical check/pay stub.
Nathan Drake
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Re: Mega Backdoor Roths - contribution percentages

Post by Nathan Drake »

Radiata wrote: Fri Jan 20, 2023 7:35 pm Practically, it's hard to figure out what percentage to use to get up to the $61k total limit (2022) or $66k this year (2023) with all the deductions, taxes, etc. The way I do it is to keep a spreadsheet and keep a running tally of the total amount that goes in, based on how much actually gets contributed each check from both me and my employer based on a certain gross pay % setting. You can project out the total contribution amount for the year based on the number of paychecks remaining and whatever the last contribution amount was. If the projection is a little over or under, you can change the percentage and recalculate after the next paycheck/contribution. This works best if you have a consistent pay amount going in every pay period, and could be more troublesome if you have a variable pay situation. I used this to good effect last year and contributed $60,500 total to my 401k, staying a little under for comfort's sake.
sailaway wrote: Fri Jan 20, 2023 1:12 pm Gross pay. Except, if you put in too high of a number, they will take premiums and taxes and just contribute the remainder.
I did this the first year I realized I could do MBD Roth, which was late in the year. I cranked up the contribution amount on Fidelity to the max of 75% and received nothing for take home pay. My company mailed me a pay stub showing the $0, along with all the premiums and taxes, which I thought was funny. This must be a special rule they have, given that I usually do direct deposit and not a physical check/pay stub.
Sounds like we do things extremely similarly!

I have income that can vary paycheck to paycheck. What I do is set my % contribution for the year (starting with the first paycheck in January) on what it would take to Max out the entire $66,000 with my Base salary alone (including 401k match).

I do pre-tax first every year (the additional cashflow on those early paychecks is nice to build up more money for IRS taxes due in April), then my plan automatically switches to after-tax once I max out. It additionally automatically converts after-tax to Roth 401K.

I keep a spreadsheet that takes into account the current number of pay periods I've contributed, what my current contribution is, and how many pay periods I have left. It then estimates the % contribution needed to max out for the year on any REMAINING paychecks.

I then simply adjusted my contribution percentage as I get closer to the end of the year. You need to be careful that you do not exceed the Max early on, as you could be forgoing 401k match if you make the mistake of maxing too early.
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ilisira
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Re: Mega Backdoor Roths - contribution percentages

Post by ilisira »

I do something similar, however I need to take into account my company’s 401K match, which is only added for the month if I have pre-tax/Roth 401K contribution, they do not match after-tax contributions, and they do a true match the January of the following year, which means I have to leave enough space for the match to fit into the limit ($66K this year).

Our HR was nice enough to provide a spreadsheet where one can insert their base salary, any salary increase (and date) for the year, and the percentage of pre tax/Roth contributions for each paycheck, as well as after tax contributions for each paycheck (one can only contribute after tax after filling in pretax/Roth space). The spreadsheet has helped me a lot for planning purposes, as it allows one to plan future contributions.

If there is interest, I can try to replicate a similar spreadsheet in google sheets.
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diydocwifejd
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Re: Mega Backdoor Roths - contribution percentages

Post by diydocwifejd »

ilisira wrote: Sat Jan 21, 2023 3:10 pm
If there is interest, I can try to replicate a similar spreadsheet in google sheets.
Yes! That would be amazing and very helpful
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WhiteMaxima
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Re: Mega Backdoor Roths - contribution percentages

Post by WhiteMaxima »

My company policy automatically contribute to aft-tax 401k once reaches fore-tax limit. I typically rollover to Roth right away so no cap gain or loss.
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goodenyou
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Re: Mega Backdoor Roths - contribution percentages

Post by goodenyou »

Just be careful not to crowd out the match with after-tax contributions (if there is one) by reaching IRS limits too soon into the year and miss out on free match money. That is, if your company has a match and/or does not have a true-up. This issue has been discussed at length here on other threads.
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