Author Topic: Can 401K Spillover contributions make a Super Roth?  (Read 440 times)

Blindsquirrel

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Can 401K Spillover contributions make a Super Roth?
« on: September 02, 2017, 06:24:10 PM »
   My company through Fidelity offers a spillover option for 401k for after tax dollars. I hit the max every year and then stop contributions at the end of the year when I hit the max. If I read this correctly we can do the spillover thing to make giant backdoor Roth contributions. We make too much to do Roth contributions. But this looks like the spillover contributions can be rolled into a Roth IRA when I leave said company. Will have to investigate this further as my company match is 6% of contributions but is a max of 6% per paycheck so you have to hit the max at the end of the year to get the whole company match and not sure if they would match spillover contributions. Any help or thoughts?

https://www.irs.gov/pub/irs-drop/n-14-54.pdf
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protostache

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Re: Can 401K Spillover contributions make a Super Roth?
« Reply #1 on: September 02, 2017, 06:36:59 PM »
This does sound like a variation of the Mega Backdoor Roth IRA. Without in-service distributions of after-tax contributions you'll either have to pay tax on the earnings when you leave or roll those earnings into a Traditional IRA, which can spoil normal backdoor Roth contributions tax-wise.

Blindsquirrel

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Re: Can 401K Spillover contributions make a Super Roth?
« Reply #2 on: September 02, 2017, 06:51:04 PM »
  The IRS doc says you can roll after tax contributions into a Roth IRA and the pretax into a traditional IRA in their examples. I will call Fidelity next week but my curiousity has been aroused. Did find a good link about it though. Does anyone do this IRL?

http://www.madfientist.com/after-tax-contributions/
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MDM

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Re: Can 401K Spillover contributions make a Super Roth?
« Reply #3 on: September 02, 2017, 09:02:43 PM »
  The IRS doc says you can roll after tax contributions into a Roth IRA and the pretax into a traditional IRA in their examples. I will call Fidelity next week but my curiousity has been aroused. Did find a good link about it though. Does anyone do this IRL?

http://www.madfientist.com/after-tax-contributions/
Yes, people do.  See also After-tax 401(k) - Bogleheads.

Indexer

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Re: Can 401K Spillover contributions make a Super Roth?
« Reply #4 on: September 04, 2017, 02:46:02 PM »
   My company through Fidelity offers a spillover option for 401k for after tax dollars. I hit the max every year and then stop contributions at the end of the year when I hit the max. If I read this correctly we can do the spillover thing to make giant backdoor Roth contributions. We make too much to do Roth contributions. But this looks like the spillover contributions can be rolled into a Roth IRA when I leave said company.

Yes, you should be able to do this. You might be able to do something even better. After this became a thing some companies went a step further. They not only allow you to contribute after-tax dollars but they will let you roll those after tax dollars into a Roth while you're still employed. I'm not sure if it moves the money to a Roth IRA or adds it to the Roth portion of the 401k. Your company might have something similar.

Blindsquirrel

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Re: Can 401K Spillover contributions make a Super Roth?
« Reply #5 on: September 16, 2017, 07:22:17 AM »
   This is definitely a really neat way to get cash into a Roth even past the limits. Talked to a very knowledgable fellow at Fidelity who had all of the details of the plan in front of him. I will take advantage of it this year and next year before I pull the trigger on bailing out of the working world. No rollovers while employed but the company match of 6% is also applied to after tax contributions so that is very cool as we can invest way above the 24k limit right up to a total of 60k  between company and my contributions as I turn 50 at the end of this year. Fired up the Fidelity website and increased my deductions to 30% as a start to get the ball rolling, before I had set deductions to hit 24k in deductions at the last paycheck of the year as they match it per pay period. Pretty cool if you ask me!
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