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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 (2) My Employer's 401(k) plan documents explicitly state that ONLY post-tax dollars may be withdrawn from a 401(k) while employed.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!
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Feb 15, 2016 01:59
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| # ¿ May 16, 2024 10:16 |
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Evil Robot posted:I would confirm your company allows the "in-service Roth distribution"; note this is different than the standard 401(k) loan or withdrawal-with-penalty - you should ask your company's benefits team / the 401(k) plan administrator that they allow what you're trying to do. Thanks for the response! Glad to hear you've been successful with this strategy. My company plan documents don't say anything about "in-service Roth distribution" but the plan allows an in-service after tax distribution. I think this should cover me. However, the guy from benefits said that when I make the 401(k) after-tax withdrawal, they only allow me to roll the earnings (pre-tax) to a traditional IRA and the after-tax contributions come in the mail to me. My goal is to put those right into the Vanguard Roth IRA. How does the actual transaction work for you? When you get the distribution, do you act as the middle-man to get the money to Vanguard?
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Feb 15, 2016 22:06
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