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  #21  
Old 08-21-2017, 11:56 AM
lulzEMH lulzEMH is offline
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I mentioned it earlier, but Mega Backdoor only works if your plan allows in-service distributions. Some do, some don't.

ETA: Google 'Mega Backdoor Roth' and your first few hits will be decent overviews.
Thanks. I just called and we can't unless over the age of 59.5. I'm surprised that we can't do the in-service distributions since my 401k plan is generally really good compared to what I hear from others and a quick google search suggested that in-service is frequently allowed.

Thanks!
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  #22  
Old 08-21-2017, 11:57 AM
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I assume you mean Traditional IRA in that last bit.

I do not know if you can transfer the earnings to a separate place avoid being taxed today, so maybe someone else can answer that.

Regardless, if you are doing Mega Backdoor Roth, you rollover immediately so there are no earnings to tax (or ASAP, putting it in a cash account for the couple of days until the rollover goes through). Once in the Roth IRA, everything there is Roth IRA dollars and earnings won't be taxed upon withdrawal.
You are able to transfer your earnings to a separate place to avoid being taxed today (although you should confirm with your plan provider). However, you need to be clear with your plan provider that this is what you want to do when it comes time to rollover.

I've heard a rare story where a provider wouldn't separate the after tax earnings and after tax contributions but when they were pressed they did end up doing it so it would be worth checking if this is your plan.
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Last edited by GoldenGoal; 08-21-2017 at 12:06 PM..
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  #23  
Old 08-21-2017, 12:03 PM
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Thanks. I just called and we can't unless over the age of 59.5. I'm surprised that we can't do the in-service distributions since my 401k plan is generally really good compared to what I hear from others and a quick google search suggested that in-service is frequently allowed.

Thanks!
It could still be very advantageous to contribute after tax earnings even though you aren't allowed in-service distributions. When you do separate from your employer you should be able to rollover your after tax to a roth and your after tax earnings to a traditional IRA (although check with your plan provider.. you may need to press them on it).
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  #24  
Old 08-21-2017, 12:25 PM
lulzEMH lulzEMH is offline
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It could still be very advantageous to contribute after tax earnings even though you aren't allowed in-service distributions. When you do separate from your employer you should be able to rollover your after tax to a roth and your after tax earnings to a traditional IRA (although check with your plan provider.. you may need to press them on it).

Press them? As in even if my employment status changed getting my administrator to let me roll the after tax contributions into a Roth IRA might be difficult?

I agree. I was thinking about still doing some post tax contributions as I plan to retire early and as you pointed out there is always a decent chance that employer changes.
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  #25  
Old 08-21-2017, 12:56 PM
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Press them? As in even if my employment status changed getting my administrator to let me roll the after tax contributions into a Roth IRA might be difficult?

I agree. I was thinking about still doing some post tax contributions as I plan to retire early and as you pointed out there is always a decent chance that employer changes.
They should definitely allow you to rollover the after tax contributions to a roth. This is a standard request.

I was referring to the investment earnings on the after tax contributions. I just read somewhere that someone had trouble getting the earnings on the after tax contributions to be rolled over separately to a traditional IRA. Although I don't see any reason why a provider couldn't do this for you (but as always.. worth confirming).
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Last edited by GoldenGoal; 08-22-2017 at 04:54 AM..
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  #26  
Old 09-07-2017, 01:01 PM
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I think maybe it was already posted but I just realized there is no income limit on Traditional IRA contributions (just the tax deductability of the contributions).

To the extent the 401k sponsor doesn't allow in service withdrawals/rollovers we are better off to use the traditional IRA after tax contributions right (up to the 11k married limits)? I did see that the rollovers to a roth could be a bit messy if one has another traditional IRA (like I have a former 401k rolled over into a traditional IRA).
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  #27  
Old 09-07-2017, 01:27 PM
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Originally Posted by lulzEMH View Post
I think maybe it was already posted but I just realized there is no income limit on Traditional IRA contributions (just the tax deductability of the contributions).

To the extent the 401k sponsor doesn't allow in service withdrawals/rollovers we are better off to use the traditional IRA after tax contributions right (up to the 11k married limits)? I did see that the rollovers to a roth could be a bit messy if one has another traditional IRA (like I have a former 401k rolled over into a traditional IRA).
Yes, pro rata rules make doing backdoor Roth a hassle and non-tax free proposition, but depending on the size of the previous IRA you may still want to do it. Alternatively, you can roll your pre-tax (not the non-deductible contributions) tIRA into your current pre-tax 401k (I don't remember if you had pre-tax or Roth 401k, but assuming you have pre-tax), and then rollover the non-deductible contributions to a Roth without having pro rata concerns.

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  #28  
Old 09-07-2017, 01:39 PM
lulzEMH lulzEMH is offline
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That link was useful. Thanks.

Currently my wife has a Roth IRA while I have a Traditional. So I think she could open a Traditional and then roll it over without any issues. These things are always viewed separately for each spouse aren't they?

Key take away from that article for me was the that I should get a decent accountant.
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  #29  
Old 09-07-2017, 01:59 PM
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Quote:
Originally Posted by lulzEMH View Post
I think maybe it was already posted but I just realized there is no income limit on Traditional IRA contributions (just the tax deductability of the contributions).

To the extent the 401k sponsor doesn't allow in service withdrawals/rollovers we are better off to use the traditional IRA after tax contributions right (up to the 11k married limits)? I did see that the rollovers to a roth could be a bit messy if one has another traditional IRA (like I have a former 401k rolled over into a traditional IRA).
Yes, it's called a Backdoor Roth (hence why the other one was called Mega Backdoor Roth) and is commonly used to get around the Roth income limits. Like celalta said, you have to consider the pro rata rule but you can just rollover an IRA into a 401k so you don't have any pre-tax IRA contributions to consider in the pro-rata. rule.

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Originally Posted by lulzEMH View Post
Currently my wife has a Roth IRA while I have a Traditional. So I think she could open a Traditional and then roll it over without any issues. These things are always viewed separately for each spouse aren't they?
Correct. Your combined income is considered when figuring out if you can contribute to a Roth directly ($185k income limit or whatever it is now), but your IRAs are separate when considering taxes on the rollover. If one spouse has pre-tax IRA dollars, the other one can Backdoor Roth without triggering the pro-rata rule (you fill out that tax form separately for each spouse). She can only do the $5,500 for herself though, not the full $11,000 combined for the both of you.
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  #30  
Old 09-13-2017, 04:52 PM
lulzEMH lulzEMH is offline
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Originally Posted by lulzEMH View Post
Thanks. I just called and we can't unless over the age of 59.5. I'm surprised that we can't do the in-service distributions since my 401k plan is generally really good compared to what I hear from others and a quick google search suggested that in-service is frequently allowed.

Thanks!
Talked to another rep and it turns out we can do an in service rollover six per 6 months. (Guess the after tax money I have in there was prior to some hard cutoff date and not eligible?).

Sounds really promising.
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