roth 401k vs after-tax 401k (w/ in-plan conversion)

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bhgpacc
Posts: 9
Joined: Sun Feb 09, 2020 3:29 pm

roth 401k vs after-tax 401k (w/ in-plan conversion)

Post by bhgpacc »

Employer will start to offer "after-tax 401k" in Q4 2022. Brokerage can do automatic in-plan roth conversion for each paycheck. Is there any difference between the in-plan converted amount and "roth 401k" (currently contributing 5%) other than they subject to different annual amount limits?

The other potential difference I can think of is about "in-service withdraw" to roth IRA. Brokerage told me that I can do so with in-plan converted amount, but limited at 4 times per calendar year. I am wondering if I can do "in-service withdraw" to the "roth 401k" portion or not. If not, this is another difference. Any one has similar experience? Thanks.
techrules
Posts: 65
Joined: Fri Jan 22, 2016 2:45 pm

Re: roth 401k vs after-tax 401k (w/ in-plan conversion)

Post by techrules »

There is a difference.

Your Traditional and Roth 401K contributions cannot exceed $19500.
Your after tax along with your Traditional/Roth contributions cannot exceed $58000.
Your conversion from after tax to roth doesnt count towards the limit of $19500.
Statistical
Posts: 571
Joined: Tue Jul 06, 2021 1:08 pm

Re: roth 401k vs after-tax 401k (w/ in-plan conversion)

Post by Statistical »

Note it is $20,500 and 61,000 in 2022 but yeah the reason for after-tax + conversion (MBDR) is to save BEYOND the direct $20,500 contribution limit.
KlangFool
Posts: 31525
Joined: Sat Oct 11, 2008 12:35 pm

Re: roth 401k vs after-tax 401k (w/ in-plan conversion)

Post by KlangFool »

OP,

Your employer may place a different limit on after-tax 401K depending on whether you are Highly Compensated Employee (HCE). And, this decision is independent of whether your 401K is a safe harbor plan.

In many places, the limit is X% of gross pay.

KlangFool
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sailaway
Posts: 8215
Joined: Fri May 12, 2017 1:11 pm

Re: roth 401k vs after-tax 401k (w/ in-plan conversion)

Post by sailaway »

It depends on your plan. Some separate out the conversion and allow you to roll just that portion out to an IRA. It sounds like your does just that. The annual limit won't really matter, from a tax perspective.
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