Does your plan have Roth in-plan conversion option. If you do that you can avoid taxes on the gains as well and just do rollover twice a year. I would check with your custodian and see if they allow in-plan conversion and do it every pay check automatically.
This is incorrect. We do in-plan conversions from from after-tax to Roth in my wife's plan and if there are any gains in after-tax between contribution and conversion they're taxable as they would be if the OP rolled the gains over to the Roth IRA. We receive a 1099R from the plan administrator indicating the taxable amount. Luckily there's no limit on the number of conversions, so she converts the day after her contributions posts meaning the gains are minimal.
If you check on the MadFientist post on Mega Backdoor, the first respnse comment on the bottom of the post discusses what I am doign/thinking. I will copy/paste for convenience, but there is some additional discussion beyond what I am posting, so maybe check the page. As I recall, I think you can send the after-tax growth to a traditional IRA, and dodge the taxes as a result (not dodge, but pay them at a later time, when you withdraw).
I've actually been doing this for some years now... I think. I started doing it at Fidelity, who have excellent customer support and I think helped guide me to the idea of doing this. Now I'm at Merrill due to employer change. They are less knowledgeable but at least seem to have executed my request.
Anyways, I still may be wrong, and am happy to discuss further.
As I'm sure many here can relate, the biggest challenge I face with all of this tax stuff is remembering. I figure out a loop-hope, and then every year I have to come back and re-learn, and sometimes it just takes a lot of work to make the knowledge stick! Our tax system is so complicated, but a PITA. And if you're not taking advantage of loopholes, then you're losing out to the mega-rich who can afford to have a personal accountant find the loopholes for them.
"Great write-up, MF. One additional and important point is that the new guidance also clarifies that you can split off the earnings from the after-tax 401k account and send them into a traditional IRA (while sending the contributions to a Roth IRA). This is important for people who don’t have the ability to take in-serve distributions. In addition, I believe for some frugal aspiring early retirees, the approach of letting earnings build up in the after-tax 401k account and then separately rolling the earnings into a tIRA (instead of taking immediate in-service rollovers into a Roth IRA) may be the optimal strategy, because that still shelters the earnings from taxes during the high-income earning years, but allows earlier access to those earnings (as early as five years after retirement, if you fold them into a Roth conversion pipeline immediately upon retirement)–and the loss of Roth tax-avoidance on those earnings during retirement does not matter to the frugal early retiree who isn’t subject to taxes in any event. We were having a debate about this recently over in the MMM forums."