Question about my regular pre tax 401k. Is it beneficial to move this money to my roth the year after I invested it? This was the profit is growing tax free.
I agree with the comments that vast majority of employers do NOT allow voluntary aftertax contributions outside of payroll deduction (which is how megabackdoor) is even possible. From what I read, such companies would have to have a very high lowest paid salaries, so that they won’t get into legal issues on the fairness of what highly paid vs. what lowest paid employees can afford to contribute. I switched 6 jobs over 10 years, most are very large corporations, and none of them allowed it.
How are these transactions treated on one's tax return? Does one need to report the shift of funds from the "after tax 401(k) to the "backdoor roth"? And what are the risks of a "huge tax bill" that the presentation refers to!?
If we do Mega backdoor rollover to roth IRA, does it considered as a contribution and not a rollover but not capped by the yearly IRA contribution limit ? can we withdraw only the contribution penalty free if the IRA? Or does it have a 5 year withdrawal restriction like in backdoor roth conversion has, even on contribution?
Is there a pro rata penalty if i have a traditional IRA and a roth IRA outside of my work 401k? I only have pretax in my work 401k. My plan allows for aftertax plus in plan conversion. I just want to make sure pro rata does not apply. I will only move new aftertax dollars into my work Roth 401k Thanks
thanks for this video. I am confused why the IRS says if you have pre tax money in your 401k as well you need to rollout a proportion of that money in addition to after tax money. I am referring to this IRS rule=> https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans under background it explains this ==> "If a participant’s account balance in a plan qualified under § 401(a) or in a § 403(b) plan includes both after-tax and pretax amounts, then, under § 72(e)(8), each distribution from the account (other than a distribution that is paid as part of an annuity, which is subject to a different rule) will include a pro rata share of both after-tax and pretax amounts."
Did $71k last year… $62k of contributions direct to a Roth IRA and $9k in gains to a traditional IRA. Got a 1099 and only the $9k in gains was taxable. There was a form on the HR site and I called them to work through the details. It was eezy peezy. The only thing I didn't like was that HR mailed me a check which I hand delivered to the brokerage office. Will be doing $40k a year going forward.
Most people don't actually have three buckets … Most employer plans only allow Roth 401k (elective roth deferral) and pre-tax (traditional 401k) without ability to do voluntary after-tax.
I.e. – my employer has in-plan roth conversion but misses the third account nixing the MBDR possibility.
Estmate I saw was < 10% of employers have third-account + in-plan roth enabling MBDR enabled in their plan due to compliance issues for HCEs.
I think there is a mistake in your calculation of how much Steve can contribute because since he’s over 50 he can contribute for 2024 $76,500 total instead of $69,000 therefore he can put in an additional $37,000 instead of $29,500 per your video, am I correct ?
It isn't really tax free. You are putting money that is already taxed into the Roth 401k. My company does allow after tax contributions so I'm doing this but my husband's company does not.
This is really clear and helpful.
Question about my regular pre tax 401k. Is it beneficial to move this money to my roth the year after I invested it? This was the profit is growing tax free.
Thank you, that's a key point: this is for people who have excess income to save.
So does it mean that the after tax money has no limit when you roll it to Roth IRA vs regular back door roth IRA?
can anyone explain what is Roth deferrals are matched? Thank you
I agree with the comments that vast majority of employers do NOT allow voluntary aftertax contributions outside of payroll deduction (which is how megabackdoor) is even possible. From what I read, such companies would have to have a very high lowest paid salaries, so that they won’t get into legal issues on the fairness of what highly paid vs. what lowest paid employees can afford to contribute. I switched 6 jobs over 10 years, most are very large corporations, and none of them allowed it.
How are these transactions treated on one's tax return? Does one need to report the shift of funds from the "after tax 401(k) to the "backdoor roth"? And what are the risks of a "huge tax bill" that the presentation refers to!?
If we do Mega backdoor rollover to roth IRA, does it considered as a contribution and not a rollover but not capped by the yearly IRA contribution limit ?
can we withdraw only the contribution penalty free if the IRA? Or does it have a 5 year withdrawal restriction like in backdoor roth conversion has, even on contribution?
Is there a pro rata penalty if i have a traditional IRA and a roth IRA outside of my work 401k? I only have pretax in my work 401k. My plan allows for aftertax plus in plan conversion. I just want to make sure pro rata does not apply. I will only move new aftertax dollars into my work Roth 401k Thanks
Is it true that there 's no more backdoor Roth conversion after 2026 based on Trump's new bill?
Question, i see there is an option to conver after tax to roth ira or roth 401k. What are the pros and cons for it
This is a great clear video. I had to scroll through a lot of videos before finding this one.
thanks for this video. I am confused why the IRS says if you have pre tax money in your 401k as well you need to rollout a proportion of that money in addition to after tax money. I am referring to this IRS rule=> https://www.irs.gov/retirement-plans/rollovers-of-after-tax-contributions-in-retirement-plans under background it explains this ==> "If a participant’s account balance in a plan qualified under § 401(a) or in a § 403(b) plan includes both after-tax and pretax amounts, then, under § 72(e)(8), each distribution from the account (other than a distribution that is paid as part of an annuity, which is subject to a different rule) will include a pro rata share of both after-tax and pretax amounts."
Did $71k last year… $62k of contributions direct to a Roth IRA and $9k in gains to a traditional IRA. Got a 1099 and only the $9k in gains was taxable. There was a form on the HR site and I called them to work through the details. It was eezy peezy. The only thing I didn't like was that HR mailed me a check which I hand delivered to the brokerage office. Will be doing $40k a year going forward.
Most people don't actually have three buckets … Most employer plans only allow Roth 401k (elective roth deferral) and pre-tax (traditional 401k) without ability to do voluntary after-tax.
I.e. – my employer has in-plan roth conversion but misses the third account nixing the MBDR possibility.
Estmate I saw was < 10% of employers have third-account + in-plan roth enabling MBDR enabled in their plan due to compliance issues for HCEs.
Julia, isn’t “Z’ correct? I think $76,500 is what we’re doing per our wealth management guidance…
I think there is a mistake in your calculation of how much Steve can contribute because since he’s over 50 he can contribute for 2024 $76,500 total instead of $69,000 therefore he can put in an additional $37,000 instead of $29,500 per your video, am I correct ?
It isn't really tax free. You are putting money that is already taxed into the Roth 401k. My company does allow after tax contributions so I'm doing this but my husband's company does not.
Very informative video on mega backdoor IRA which very few people know. Thanks for sharing this video.