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Can someone clear something up for me regarding 401k in-plan conversions to Roth? My 401k is through fidelity, and I have already been maxing out a $19.5k Roth contribution, and get a 10% company match, and am fully-vested in everything. It turns out that our plan recently enabled you to choose automatic, daily, in-plan conversions to Roth for after-tax contributions if I want. I guess what I struggle with, is why is this allowed, or what am I missing? It seems to be a direct and automatic bypass of the 19.5k limit for Roth contributions. If I read things right, I can just continue to contribute after-tax contributions past the $19.5k limit (subject to the total $57k limit for employer/employee contributions), and they will immediately be converted to Roth prior to accruing any taxable earnings, and will then grow tax free. I could then (if I choose), take an in-service distribution and move things to my Roth IRA. This seems like a giant loop-hole, so I'm not sure what I'm missing. It would appear Fidelity and my plan have effectively weaponized/automated a mega-backdoor Roth 401k/IRA? Does anyone else have a 401k through Fidelity and see similar features on their account?
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Feb 10, 2021 20:19
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CubicalSucrose posted:Congrats! Look up "megabackdoor Roth." It's as good as it sounds. Depending on your plan details, you may be limited in the # of times you can move funds from one bucket to another (1 per year is one of the most restrictive I've seen), or you might not. Oh yeah, I know the megabackdoor thing is real, I'm just........surprised there is an option for automatic, daily conversions of all after-tax contributions (and no limit on number of conversions). That part is what sounds too good to be true.
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Feb 10, 2021 20:37
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Red posted:Do you use their netbenefits.com site or something else? Yes, it's managed through netbenefits.
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Feb 10, 2021 21:23
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Pollyanna posted:wait what https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021 Only way to hit a 37% rate is to be above $523k if you are single, or $628k married filing jointly.
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Mar 16, 2021 01:50
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Residency Evil posted:Still confused by this. 37% is the highest it could be? Yeah I'm still confused also. While withholdings may vary depending on setups and different income sources, at the end of the day, your end of year total tax liability is beholden to the tax brackets. And there is no way you can owe 37% tax on any part of your income to the feds unless your total AGI clears the income brackets posted. Pollyanna posted:STCG is 37% I believe. Nope. Yond Cassius posted:Short-term capital gains are treated as straight income. This. Any STCG get added to your other ordinary, taxable income and then weighed against the tax brackets (minus deductions). Pollyanna - I really don't think you are as hosed as you think you are - but still, talk to a CPA. ROJO fucked around with this message at 05:03 on Mar 17, 2021 |
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Mar 17, 2021 04:58
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So, question for those that have an HMBradley account - got one set up and a minor $20 direct deposit from my paycheck going there, and got it up to the 3% tier successfully. I'll be transferring a significant chunk of my savings from Alliant over to there since the Alliant rate is such crap these days, but I wanted to clarify how their Tiers work if you take money out. Since my direct deposits are going to be small (~40/mo), I assume any significant withdrawal I would make would cause my "savings rate" to fall, and wreck my interest for the following quarter? So I should really only ever withdraw from here when I really need to actually draw my savings down to not kill my interest for a whole quarter? Or am I misunderstanding this? Also, does the $100k limit result in 0% interest on just the balance OVER $100k? Or if you trip over $100k does it trigger zero interest for your entire account balance?
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Mar 19, 2021 17:43
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EBB posted:Thank you to thread regulars, this place has been great reading in the past few months. I have a matched 401k with Fidelity through work but I also want to start on an IRA this year to fill that tax advantaged space. My wife and I are over the income limit. I understand the process as: Through fidelity, the 'conversion' is just transferring the money from the Traditional account to your Roth account. There should be no restriction on when you open the Roth (because in future years the account would already exist). Each person should be able to do it every year, for a total of $12k. As for the waiting period.....I did it after just a day wait, and left the money as cash so I don't worry about any gains before the conversion. If you wait longer, you may want to go ahead and invest it. That said, I'm not necessarily recommending only waiting a day, but, that's what I've done. We will see if the tax man comes after me for it, but it seems pretty low risk in my eyes. edit: the guide posted above is a little out of date with how I remember the current process with Fidelity working, but it gets the jist of it. edit2: also note, if you are funding your 2020 IRA at this point, it will be a little funky because you won't have a 1099-R, and the contribution is a 2020 event but the conversion is technically a 2021 event. If you are using turbo-tax or something similar I would look up a guide for the proper way to answer questions in that situation so that a Form 8606 is produced properly and your non-deductible basis is carried forward. If you are funding/converting in the same calendar year as your taxes, it is more straight forward. ROJO fucked around with this message at 17:43 on Mar 25, 2021 |
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Mar 25, 2021 17:34
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Silly Burrito posted:Just got an email saying that HMBradley's deposit accounts are moving to invite only (as referrals from current account holders) for now. Guess too many people are taking advantage of that 3% offer. That doesn't feel like an great sign - still slightly nervous about the money I have parked there.
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Jul 21, 2021 01:14
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GoGoGadgetChris posted:Must be subjective, but I would not feel comfortable leaving the workforce in my 50s with annual income of 4% X $1.9M You can also do more than $20k per year (which is how you came to your $1.9M number) tax-advantaged through back-door and mega back-door Roth shenanigans if they are available to you.
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Aug 15, 2021 01:18
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fatman1683 posted:So it seems like HMBradley has gone invite-only, does anyone have a couple of invites they can share for myself and my wife? Thanks! PM'd you, let me know if it doesn't work.
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Oct 18, 2021 19:17
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spwrozek posted:was just about to post this. Nice while it lasted. Removing my direct deposit as we speak. Looks like you need $2500 in direct deposit as well if I am reading this correctly. Yeah, that's my interpretation as well - $2.5k in deposits each month to qualify for a savings tier - although it certainly is somewhat unclear based on the wording in the email. So yeah, pulling the ripcord on this after the Dec interest posts. Even though the 1% is still better than most HYSAs right now, no way I'm throwing that much money in there a month or utilizing their credit card for the 3%. ROJO fucked around with this message at 21:30 on Dec 15, 2021 |
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Dec 15, 2021 21:28
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I too would be interested in any broad estate planning advice others have - something we have been delaying for far too long.
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Dec 31, 2021 16:15
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 I'm another one who got hosed by a midday order for mutual funds for my backdoor IRA. I mean, it doesn't matter, I'm not touching my Roth IRA for 3+ decades, just comical how I placed the order at almost a 4% sale from what it actually went through at.
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Jan 25, 2022 16:19
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MrLogan posted:Long Term Investing & Retirement: Talking to your Girlfriend about Backdooring 
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Feb 5, 2022 00:05
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I had no problems getting my Treasury Direct form stamped at Bank of America - I didn't even have to explain it - I was halfway through my first sentence with the form out and the teller already knew what I was looking for.
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May 8, 2022 04:49
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Ramrod Hotshot posted:Do you have an account there? I went to two credit unions to do it today and they told me I had to be a member. Maybe at a regular bank it doesn't matter? This is from awhile back and long moot now, but just to answer in case it helps anyone else - yes I do have an account there (BofA), although they didn't actually ask if I was a customer - they just filled out the form.
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May 14, 2022 18:32
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Loucks posted:I posted about this experience with my own tax preparer a few pages ago. I should say "ex-tax preparer" because he insisted that the full amount of the two conversions were taxable and also that we shouldn't have made any contributions at all because both my spouse and I have employer-provided retirement plans and the contribution limits are linked in some weird way he couldn't articulate or provide any IRS documentation to support. When I told him they were nondeductible contributions followed by total conversions and asked for the 8606 he flipped out and terminated the relationship.  Jesus Christ even TurboTax knows how to do a backdoor Roth.
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May 20, 2022 20:15
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Speaking of mega-back doors, what will I have to do if I accidentally squeak over the $61k limit? I am trying to avoid meticulously charting everything out, and have reduced my contribution now to just the point where I max my employer contribution. I think I am going to be safely below the limit by about a pay period, but curious how much I should be really making sure.
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Oct 21, 2022 19:34
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withak posted:Your company doesn't cut off automatically at contribution limits? I would think most do. I was assuming the worst and wasn't trusting my employer to be that smart, but maybe fidelity is? I guess I will call. Thanks!
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Oct 21, 2022 20:08
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As others have said, I wouldn't touch that mortgage given that rate, put anything you can into that mega-backdoor Roth 401k. Just remember that total contribution limit includes not just your contributions, but your employer's match as well.
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Nov 26, 2022 03:16
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It's worth pointing out this isn't allowed under every plan, you need to have a plan that specifically allows this, and hopefully, like Fidelity does, enables automatic daily conversions so you don't accrue any interest you have to pay tax on when the after-tax contribution becomes Roth.
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Nov 26, 2022 07:34
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To be clear on terminology, what you are describing (exceeding the 22.5k personal contribution limit by putting after-tax contributions into your 401k and converting to roth immediately) is a Mega Backdoor, not a 'normal' Backdoor, which happens solely in IRA space and is limited to $6,500 for 2023. But yes, your math is basically what it works out to for the Mega Backdoor.
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Jan 3, 2023 21:45
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Yeah, Fidelity will cut you off at the $61k cap, but you have to micromanage your contributions as you get close to end of year. I cut down to the minimum to get my full company match in October and it looks like I wound up missing maybe $100 of company match or so because I hit the aggregate limit on the last paycheck. Annoying, but I don't really know how it could be done otherwise, especially if you get bonuses, etc.
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Jan 6, 2023 00:46
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KYOON GRIFFEY JR posted:All employer payroll systems should be set up to run bonuses as separate checks and not deduct poo poo like health insurance, HSA/FSA, and retirement contributions. This is straightforward and standard config in any payroll software. My employer absolutely made 401k contributions for my retention incentive payout and management incentive plan (our equivalent of a yearly bonus), two things I either didn't know we're happening on Jan 1 (former) or couldn't have predicted the size of (latter). Can't speak to other stuff because all our medical is with my wife's job. I would have to go back and look to see if I made contributions off them, but I definitely got the 10% match from my employer on those two items. ROJO fucked around with this message at 03:15 on Jan 6, 2023 |
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Jan 6, 2023 03:12
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Coming up with some hand-wavy modeling job or something you can pay your child for through a shell company seems easier than dealing with waiting 15 years to do a roll-over.
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Jan 31, 2023 06:19
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Fuschia tude posted:You can only save that much if your employer is matching your contributions 2 for 1? Hmm yes that makes sense Google Mega Backdoor Roth before you get snarky. It might not make sense, but it is allowed and fully weaponized by some 401k plans. Ask me how I maxed out the all sources 401k limit last year. Edit: sorry, probably too snarky myself. But it is a thing, and if you have the means and plan rules to take advantage, it is a very nice thing to have. ROJO fucked around with this message at 08:20 on Sep 3, 2023 |
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Sep 3, 2023 08:15
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spwrozek posted:Citi double Cash is one of the easiest 2% cash back cards. No hoops or categories. Since we're on the topic of fidelity, they also have a 2% flat rewards card that is great for any purchases that don't qualify for higher returns on cards with categories. Goes straight into your brokerage account and invested in your money market fund.
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Feb 11, 2024 07:04
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Leperflesh posted:Repeating backdoor Roth, and investigate the mega-backdoor roth potential too. You'll want to talk to the plan administrator at your employer and ask if the plan allows "after tax contributions" and either "in-service distributions" or transfers between after-tax contributions and the Roth 401k account. Thirding backdoor Roth - you can still do it for 2023 as well (although the paperwork is a bit uglier on your taxes if you don't make the contribution in the same year as the conversion).
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Mar 26, 2024 22:11
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Residency Evil posted:I have to imagine it'll be like that HYSA people were flocking to a year or two back: promise high returns on deposits then walk it back after enough people have joined/switched. at least at that HYSA you didn't have to stick around for years to get the benefit.
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Mar 29, 2024 20:59
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