Author Topic: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?  (Read 499 times)

Mustache_In_Training

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Hi All,

My 401k plan allows for after-tax contributions up to the IRS limit. The question I have relates to whether I should convert after-tax contributions to my Roth 401k or Roth IRA. The plan has no limitations on "in-plan conversions" from After-Tax to Roth 401k. However, if I want to convert After-Tax to Roth IRA, it can only be done once every 6 months.

Does it make sense to wait 6 months and convert all after-tax contributions to Roth IRA or convert to Roth 401k every pay period? 

Thanks!

MDM

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #1 on: June 19, 2018, 09:39:07 AM »
Eventually (as in before age 70.5) you'll probably want everything in a Roth IRA because there is no RMD requirement there, but there is for a Roth 401k.

Meanwhile, is there a significant difference in the fees charged for your investments of choice?

Mustache_In_Training

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #2 on: June 19, 2018, 09:49:38 AM »
MDM,

I'm only 31 years old at the moment, so RMD not a big concern. There's not a significant difference in fees, however the 401k plan is slightly favorable.

If I were to convert After-tax 401k contributions to Roth 401k, is it trivial to eventually roll into a Roth IRA?

MDM

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #3 on: June 19, 2018, 09:58:34 AM »
If I were to convert After-tax 401k contributions to Roth 401k, is it trivial to eventually roll into a Roth IRA?
Yes.

That seems the best path - enjoy!

seattlecyclone

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #4 on: June 19, 2018, 10:29:37 AM »
Yes, it is trivial to move your Roth 401(k) to a Roth IRA once you leave your current employer. The reverse is not true. Roth IRA funds can never be rolled into a 401(k). Given that the fees are similar between the two options I'd go with the 401(k) for now. This is what I do at my employer.

Systems101

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #5 on: June 19, 2018, 01:06:22 PM »

I think it depends on the details and fees you will pay on the conversion, if any.  If you can convert every paycheck with no fees, you will probably be better off using the 401(k) due to flexibility.

I also have both options, but I choose the IRAs, because mine has a fee and some more limits for the conversion.

Once I defer to converting every 6 or 12 months, I end up with gains (usually).

If I roll over to a Roth 401(k), then I pay taxes on the gains, so I have more current income.

If I roll over to IRAs, I can split the contributions (go to Roth) from the gains (go to Traditional IRA).  In that way, I extract the money (and pay the early withdrawal fees) once a year, and pay no taxes.

Mustache_In_Training

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Re: After-Tax 401k contributions - Convert to Roth 401k or Roth IRA?
« Reply #6 on: June 20, 2018, 06:00:03 AM »
Thanks for all the replies! Thankfully there are no limitations or fees on converting from after-tax to Roth 401k. It sounds like this is my best option to avoid gains (and taxes). Once I reach FI I can roll everything to a Roth IRA.