Skip to main content
Message Font: Serif | Sans-Serif
 
No. of Recommendations: 0
Both my wife and I have small Roth IRAs, a 401K and a 403B as well as separate traditional IRA accounts our combined income is now too high to contribute do I have the option to transfer my 401K after tax savings to one or both of our existing Roths upon retirement? Looking to retire in ~ 2-3 years wondering if it makes sense to maximize additional after tax 401K savings now...thanks for your feedback!
Print the post Back To Top
No. of Recommendations: 2
Your ability to roll over a 401k to an IRA after you leave a sponsoring employer is independent of your ability to directly contribute to the IRA.

Fuskie
Who notes that if you are no longer income-eligible for a Roth IRA contribution, you may fall into the highly compensated category with your employer's 401k plan, which might impact your contribution limits there as well, so he would check with your plan administrator to make sure you understand your options...

-----
Ticker Guide: The Walt Disney Company (DIS), Intuit (INTU), Live Nation (LYV), CME Group (CME), MongoDB (MDB), Trip Advisor (TRIP), Vivendi SA (VIVHY), Mimecast (MIME), Hain Celestial (HAIN), Royce Micro Capital Trust (RMT)
Disclaimer: This post is non-professional and should not be construed as direct, individual or accurate advice
Disassociation: The views and statements of this post are Fuskie's and are not intended to represent those of The Motley Fool or any other sane body
Disclosure: May own shares of some, many or all of the companies mentioned in this post (tinyurl.com/FuskieDisclosure)
Fool Code of Conduct: https://www.fool.com/legal/the-motley-fools-rules.aspx#Condu...
Invitation: You are invited to interactively watch Motley Fool Live online television: https://livechat.fool.com
Call to Action: If you like this or any other post, Rec it. Better yet, reply to it. Even better, start your own thread. This is YOUR TMF Community!
Print the post Back To Top
No. of Recommendations: 0
You are mixing up some terms. Rolling over a 401k into an IRA is not a Roth IRA back door.

If you are looking to retire in a few years, it may or may not make sense to maximize your 401k contributions - assuming your intent to roll them to a Roth in the near future.

Note, any money you roll from 401k to a Roth is taxable as income in the year in which you complete the rollover (discounting some very uncommon and small exceptions). Adding more now just makes that a larger taxable event

A "back door Roth" contribution is where you put money into a traditional IRA for which you don't get a tax deduction and then immediately convert it to a Roth - with no tax implications. Since you already have IRA accounts, you would not want to make a back door Roth contribution as your immediate rollover is is taxed pro-rata based on your total IRA holdings.

For example, if you have 100k in your T IRA and you add 5k in an attempt to complete a back door roth contribution, you would not get to roll that 5k over tax free to the Roth. Instead, roughly 95% of that rollover would be taxed as income (5/105 = 0.047% - 1 = ~ 95%), even though you did not claim a tax deduction on the 5k contribution.

If you REALLY want to back door roth contributions, you need to first get rid of those T IRAs by either converting them to Roth accounts now or seeing if you can put them in your 401k.
Print the post Back To Top
No. of Recommendations: 1
Both my wife and I have small Roth IRAs, a 401K and a 403B as well as separate traditional IRA accounts our combined income is now too high to contribute do I have the option to transfer my 401K after tax savings to one or both of our existing Roths upon retirement? Looking to retire in ~ 2-3 years wondering if it makes sense to maximize additional after tax 401K savings now...thanks for your feedback!

Should your title actually say "Mega Back Door Roth"?

When you say wondering if it makes sense to maximize additional after tax 401K savings now it sound like you are talking about a Mega Back Door Roth, where you max out your 401(k) with either Traditional or Roth contributions (depending on your tax situation) and then make after tax contributions to your 401(k) and convert those after tax contributions to either a Roth sub account within the 401(k), or to a Roth IRA. (If you convert to a Roth sub account in the 401(k), then you can roll to a Roth IRA when you leave your employer.)

I would say that if you were planning on investing that money anyway, that doing the Mega Back Door Roth is a great strategy. In fact, it's so good that I would suggest trying to adjust your expenses down so that you can come as close to maxing out your after tax contributions as possible.

A "Back Door Roth" (as opposed to a "Mega Back Door Roth") is when you make after tax contributions to a Traditional IRA, and then convert that contribution to a Roth IRA shortly afterwards. If you don't have any other Traditional IRAs, you can do this conversion with little/no tax impacts. Unfortunately, when you have a Traditional IRA, you end up getting hit with the 'pro-rata' tax rule, and generally end up paying a lot more in taxes. However, there is a way around this rule, if your 401(k) plan allows rollovers from a Traditional IRA - you can roll your Traditional IRA into your 401(k). That will leave you with no money in your Traditional, so that you won't get hit with the pro-rata rule on the conversion. That would allow you to make Roth contributions, even if you are over the income limit to make contributions to a Roth IRA.

AJ
Print the post Back To Top
No. of Recommendations: 0
Hi AJ - I didn't understand what back door meant. I don't think my 401K has Roth option- that said I'm hearing that upon retirement independent of my taxable income level I can selectively convert all of my after tax 401 contributions to a Roth and either leave the balance of my 401K (pretax savings) alone or convert to a traditional IRA is this essentially correct? Or is my ability to do this dependent upon the specific plan rules for my company's 401K? Thanks!
Print the post Back To Top
No. of Recommendations: 0
I don't think my 401K has Roth option- that said I'm hearing that upon retirement independent of my taxable income level I can selectively convert all of my after tax 401 contributions to a Roth and either leave the balance of my 401K (pretax savings) alone or convert to a traditional IRA is this essentially correct? Or is my ability to do this dependent upon the specific plan rules for my company's 401K?

I would be surprised if your 401(k) plan allowed after tax contributions without having a Roth option, but I suppose it's possible.

If you are allowed to make after tax contributions, yes, when you leave the company (either through retirement or just by leaving your job), you should be able to convert the after tax contributions to a Roth IRA. Whether you can do so without also moving the rest of your 401(k) money to IRAs is dependent on your plan's rules.

I would suggest reading your Summary Plan Description (SPD) and contacting your plan administrator's customer service.

AJ
Print the post Back To Top