tjh5122 posted:

Hello All! First time poster here, and pulsing the community about something new I stumbled across - the "Mega backdoor Roth IRA." The situations where you might employ this technique are quite specific, but let me attempt to explain my understanding and then pose my question:

Here is an article summarizing the concept: http://whitecoatinvestor.com/the-mega-backdoor-roth-ira/. Essentially, a Mega Backdoor Roth IRA may allow you to sneak a lot more than the $5,500 IRA/$18K 401(k) limits into a Roth IRA. This requires two key elements:

1. Your employer must allow you to contribute post-tax dollars into your 401(k). This allows you to put up to $53K in your 401(k) annually ($18K split between Roth and Traditional 401(k) dollars and the balance being the after-tax contributions.
2. Your 401(k) plan must allow in-service withdrawals (from my reading, this tends to be more rare).

By contributing after-tax dollars to your 401(k) beyond the $18K limit, you could theoretically roll this money out directly into a Vanguard Roth IRA. This greatly increases your contribution limits for Roth IRAs. There is a catch. IRS publication 2014-54 (https://www.irs.gov/Retirement-Plans/Rollovers-of-After-Tax-Contributions-in-Retirement-Plans) states that such rollovers from your 401(k) must take a pro rata share of pre-tax and post-tax dollars. This would subvert the strategy by forcing you into recognizing taxable income on the pre-tax 401(k) dollars.

Deal breaker? I'm not sure. Hence my question:
(1) Has anyone utilized this "mega backdoor Roth IRA" trick and had success?
(2) My Employer's 401(k) plan documents explicitly state that ONLY post-tax dollars may be withdrawn from a 401(k) while employed. So, if my employers plan ONLY allows for post-tax withdrawals, does this supersede the guidance from the IRA publication and allow me to yank the post-tax money and roll into a Roth?

Thanks!