Are post tax contribtions to my 401k "rollable" into a roth IRA at the time I leave the company? or am I stuck with having to put these funds into a taxable acct? Since i'm 30 yrs from retirement this could hurt!
Are post tax contribtions to my 401k "rollable" into a roth IRA at the time I leave the company? No... Of course, the only thing "rollable" into a Roth IRA is a traditional IRA. But if you have a 401(k) account and have left the company, everything in the 401(k) account except your after-tax contributions can be transferred into a traditional IRA....or am I stuck with having to put these funds into a taxable acct?Yes, but how are you "stuck"? Since i'm 30 yrs from retirement this could hurt! Don't really see how. The earnings on those after-tax contributions will be growing, tax-deferred, within the 401(k) all that time, and you will be able to roll those earnings into an IRA if you choose.And the post-tax contributions will come to you as cash, to do with as you choose -- trip around the world, new sports car, whatever --Or, you could invest them in a tax-managed mutual fund, or a portfolio of non-dividend-paying stocks and hold them for 20 years, then cash them in and pay only at the long-term capital gains rate on any earnings!What could be better than that?Just curious,Phooley
Right on Phooley. Still for retirement purposes its usually best to max those pretax contributions before you start making aftertax contributions. If you can afford it max both of course.
And the post-tax contributions will come to you as cash, to do with as you choose I have a question regarding this process. If I leave at the age of 30, say, and have a mixture of pre- and post-tax contributions to my 401k, I can rollover the pre-tax funds to a Rollover(Conduit) IRA, right? Any earnings from these funds will be rolled over as well with all taxes deferred until distribution. But what about the post-tax contributions? The way I understand it, the reason for contributing post-tax funds is because the earnings are tax exempt, similar to a Roth. Is that true? What about the post-tax earnings? In the scenario Phooley mentioned it seems that all pre-tax contributions and ALL earnings will be rolled over to a Conduit IRA, while post-tax contributions will be distributed. Am I understanding what you are saying? Also, Phooley, would those post-tax contributions be distributed as a qualified distribution? Sorry if these are old questions, I am attempting to figure out what I should max out in terms of retirement money. Please point me to the posts or links if these have already been answered multiple times. ThanksGabe
Hi, Gabe:The way I understand it, the reason for contributing post-tax funds is because the earnings are tax exempt, similar to a Roth. Is that true?I guess that's so -- it's true that it works that way -- personally, I made post-tax contributions for two reasons:(1) that's the way my employer & Fidelity handled it when we had reached the $10,000 (or whatever) annual limit -- I believe in some plans, you may just not be eligible to contibute to the 401(k) at all between that point and the subsequent Jan. 1.(2) I wanted the flexibility of being able to take some money out -- either before or after leaving the job or retiring. My 401(k) balance looked healthy enough that I didn't feel I needed to max-out the pre-tax contributions. Of course I always contributed at least the max. amount that was subject to matching, even in the early years when the matching only occurred on 12/31 and was in company stock. What about the post-tax earnings?They are in the part that is eligible for rollover. In the scenario Phooley mentioned it seems that all pre-tax contributions and ALL earnings will be rolled over to a Conduit IRA, while post-tax contributions will be distributed. Am I understanding what you are saying?I think so. Of course, "Conduit IRA" implies you are keeping the funds segregated for potential reinvestment in a 401(k). Some people would just consider it an IRA -- maybe "Rollover IRA". Also, Phooley, would those post-tax contributions be distributed as a qualified distribution? Well ... I don't think that's quite right.If you have a 401(k) that includes some post-tax contributions, you can, as far as the IRS is concerned, receive any portion of those after-tax contributions at any time -- while still working, after quiting, after retiring, etc. And as I said, it's your own money -- not taxable when you receive it -- so I don't consider it as eligible for a fancy term like "qualified distribution." It's just your own money -- the taxes on it have already been paid -- and your receipt of it is not a taxable event.Hope this answers your questions -- I think your perception is quite accurate.Paul and I may differ slightly on the urgency of maxing out your pre-tax contributions. I definitiely wouldn't argue with someone who decided to do that -- there's nothing really wrong with the idea -- but in some cases I think it's possible for people to build up a balance of money, tax deferred, that's a little too large to manage. This can make estate planning a little difficult, and may make it difficult to take advantage of the exclusions available.I don't have specific posts to point to -- this thread covers the original (post-tax 401[k]) question pretty well, I believe. Any additional questions should probably be given a fresh start in a new thread.By the way, I don't claim to be an expert -- I just closed out my 401(k) in 1998, and had kept track of the post-tax contributions over the years so I would know how much money I had coming to me, and just wanted to share my experiences.Hope this helps,Phooley
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