Hello,
Until now I have been contributing excess dollars, to taxable, beyond maxing both my wife and my 401k as well as Roth IRA (combination of direct and backdoor).
I recently read up on the mega backdoor roth strategy. I would like some insight to help me determine if this is a good strategy for me. My understanding is the 401k plan administrator needs to allow after tax contributions and also in plan conversions.
I read my plan documents and also confirmed with Fidelity Workplace that the plan does permit after tax contributions as well as in plan conversions. Also the plan allows for in service withdrawals up to 4 times a year. One caveat is there is no option for automatic conversions. The conversion can only be done over phone.
One thing I did read in the documents is that highly compensated employees cannot make after tax contributions. I called the plan administrator. They reviewed payroll information and told me I do not fall into this category.
Based on everything I researched I believe I am eligible to execute this strategy. My plan is to test this for remainder of the year to see how easy it is. I will make a small contribution to after tax from my next paycheck. Then call Fidelity Workplace the day the contributions hit the account to have them convert to Roth 401k.
My questions are the following:
1. My wife and I are both 39, filing jointly, in 24 % bracket this year. Does the MBDR make sense from a tax perspective? I can’t see any downside versus taxable but want thoughts.
2. Could the after tax contribution have any implications with the company match? My company matches up to 4 percent of salary contributed to Roth and pretax.
3. Should I have any worry that the plan rejects the after tax contributions? My understanding is the HCE is based off the previous years income but want to confirm I am thinking through this correctly. Also I may potentially receive a bonus this year which could make me fall into HCE next year.
4. Should I be having any worry of taxes on the conversion. I am reading mixed information if an after tax 401k to Roth 401k would be taxed pro rata?
5. I understand I am sacrificing some liquidity by redirecting taxable contributions to an MBDR. Does the tax benefit outweigh the benefit of immediate access with taxable?
6. The plan does not do automatic conversion. I get paid monthly. With this said is the MBDR worth the administrative hassle of calling every month?
7. Is my understanding of the strategy accurate and does my plan sound reasonable? I am nervous about doing this wrong. I don’t want to be hit with a surprising tax bill or any other complication so would like some insight to give me confidence.
Until now I have been contributing excess dollars, to taxable, beyond maxing both my wife and my 401k as well as Roth IRA (combination of direct and backdoor).
I recently read up on the mega backdoor roth strategy. I would like some insight to help me determine if this is a good strategy for me. My understanding is the 401k plan administrator needs to allow after tax contributions and also in plan conversions.
I read my plan documents and also confirmed with Fidelity Workplace that the plan does permit after tax contributions as well as in plan conversions. Also the plan allows for in service withdrawals up to 4 times a year. One caveat is there is no option for automatic conversions. The conversion can only be done over phone.
One thing I did read in the documents is that highly compensated employees cannot make after tax contributions. I called the plan administrator. They reviewed payroll information and told me I do not fall into this category.
Based on everything I researched I believe I am eligible to execute this strategy. My plan is to test this for remainder of the year to see how easy it is. I will make a small contribution to after tax from my next paycheck. Then call Fidelity Workplace the day the contributions hit the account to have them convert to Roth 401k.
My questions are the following:
1. My wife and I are both 39, filing jointly, in 24 % bracket this year. Does the MBDR make sense from a tax perspective? I can’t see any downside versus taxable but want thoughts.
2. Could the after tax contribution have any implications with the company match? My company matches up to 4 percent of salary contributed to Roth and pretax.
3. Should I have any worry that the plan rejects the after tax contributions? My understanding is the HCE is based off the previous years income but want to confirm I am thinking through this correctly. Also I may potentially receive a bonus this year which could make me fall into HCE next year.
4. Should I be having any worry of taxes on the conversion. I am reading mixed information if an after tax 401k to Roth 401k would be taxed pro rata?
5. I understand I am sacrificing some liquidity by redirecting taxable contributions to an MBDR. Does the tax benefit outweigh the benefit of immediate access with taxable?
6. The plan does not do automatic conversion. I get paid monthly. With this said is the MBDR worth the administrative hassle of calling every month?
7. Is my understanding of the strategy accurate and does my plan sound reasonable? I am nervous about doing this wrong. I don’t want to be hit with a surprising tax bill or any other complication so would like some insight to give me confidence.
Statistics: Posted by GratefulDad — Fri Sep 20, 2024 12:44 pm — Replies 7 — Views 199