Author Topic: Getting employers to allow non-Roth after-tax contributions (mega backdoor)  (Read 1187 times)

hadabeardonce

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Has anyone successfully been able to get their employer to modify the details of their retirement plans?

I'm working with mine to see if it can be done - sent my payroll department enough IRS links to convince them the deal was legal and I spoke with our retirement plan vendors, who told me all that needed to be done was click a box to allow the option for non-Roth after-tax contributions and in-service distributions or in-plan Roth rollovers.

Is there any reason an employer wouldn't allow this? I can't tell if there are any drawbacks to opening the mega backdoor Roth.

Four or five different bargaining units need to agree to the change, so I'm looking for good talking points. Right now my tagline is, "this would allow employees to contribute money up to the full IRS limit and not pay taxes on the withdrawls after they retire."
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ixtap

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Depending on how the match is worded, it is likely more than just clicking a box.

-some companies match after tax, and some don't, so there must be at least two boxes
-there might be extra costs. DH's vendor offers considerable support for the mega backdoor process, probably not for free
-some companies cover plan fees for current employees. Additional funds in the game likely mean additional fees.
-such changes may need to pass through the board of directors, thus adding another level of complexity.

This is not to discourage you from trying, just to help you consider more angles.

frugalnacho

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my employer allows me to make after tax contributions, but they don't allow withdraws so its stuck there until i quit

Scortius

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It's not really about your employer directly, it's about the plan your employer purchases from their 401k provider. Yes, you need two key features: after-tax contributions and in-service withdrawals. If your employer is smaller it may be harder to negotiate a plan that allows for in-service withdrawals, similar to how smaller companies will not be as able to find 401k providers willing to give them plans with options for low expense ratio funds (my wife's small company is stuck with a plan where the S&P 500 tracker has a 0.7% expense ratio). It also may not be worth it for a small company to pay extra for a mega-backdoor plan given the extremely small number of people who would be contributing $56k/year in the first place, especially if the in-service stipulation cost the company more or came at the trade-off of losing access to lower fee funds. Worth looking into though!

slappy

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You may want to have other employees that are interested as well. Especially if there is a cost involved, they are unlikely to offer it if they don't think people want it.

hadabeardonce

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Depending on how the match is worded, it is likely more than just clicking a box.

-some companies match after tax, and some don't, so there must be at least two boxes
-there might be extra costs. DH's vendor offers considerable support for the mega backdoor process, probably not for free
-some companies cover plan fees for current employees. Additional funds in the game likely mean additional fees.
-such changes may need to pass through the board of directors, thus adding another level of complexity.

This is not to discourage you from trying, just to help you consider more angles.
We don't get a match, but we have a 403b and a 457b which are both tax deferred savings plans. This would be a method to encourage saving more and eventually paying less in taxes.

Right now I'm at the step prior to something like a "board of directors approval." There are four or five different bargaining units(unions) that have to agree to the plan change and my employer is going to research if there will be an additional cost. It'll be an adventure to get it done, but hopefully it's worthwhile and more beneficial than a taxable account.

my employer allows me to make after tax contributions, but they don't allow withdraws so its stuck there until i quit
I'll make sure to request both - good feedback.

It's not really about your employer directly, it's about the plan your employer purchases from their 401k provider. Yes, you need two key features: after-tax contributions and in-service withdrawals. If your employer is smaller it may be harder to negotiate a plan that allows for in-service withdrawals, similar to how smaller companies will not be as able to find 401k providers willing to give them plans with options for low expense ratio funds (my wife's small company is stuck with a plan where the S&P 500 tracker has a 0.7% expense ratio). It also may not be worth it for a small company to pay extra for a mega-backdoor plan given the extremely small number of people who would be contributing $56k/year in the first place, especially if the in-service stipulation cost the company more or came at the trade-off of losing access to lower fee funds. Worth looking into though!
We're like 4,000 people and one of the unions has a lot of sway. If I can convince them, it'll probably work. Few people probably want to put away this much money, so it'll be difficult to find a bunch of people to carry pitch forks and torches with me.

I'll make sure to ask if there's an increased cost associated with the change.

You may want to have other employees that are interested as well. Especially if there is a cost involved, they are unlikely to offer it if they don't think people want it.
I'll give that a shot. Increased demand could help and a lot of people aren't aware of the mega backdoor. I had to educate my payroll department about it.

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Thanks for all the feedback
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TheWifeHalf

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TheHusbandHalf's employer allows after tax contributions, after the before tax limit is reached, and he has converted the $ to a Roth

Almost 500 of the employees are union members, in a union part of the country.
« Last Edit: January 12, 2018, 02:43:17 PM by TheWifeHalf »

hadabeardonce

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Monday I attended my employer's annual retirement benefit meeting and asked my question about after-tax contributions and rollovers... I'm not optimistic about the option becoming available. We're up against a budget crisis, so the payroll department is losing people and trying to reduce complexity by limiting vendors, accounts, etc. It seems like to get anything changed I'd need 25 people signed on beforehand asking for that option to become available.

On the bright side we may have new 457 options. They are going to reevaluate Fidelity and Vanguard, who we already use for 403b services. I also learned that we have ~25% employee participation rate in the retirement plans, so I'll have to spread the word about how good they are somehow.

There's a local MMM meetup this weekend and a guy there got the mega backdoor going at his company. I'll have to ask him exactly how he's utilizing it. It sounded like he was able to rollover after-tax 401k contributions to a Roth 401k... I'm curious if I could do the same thing with my company and try to explain that the process is easy to manage. My initial impression was that I had to rollover the after-tax money to a Roth IRA, but a Roth 403b could be cool too.

Most likely I'll just start a taxable investment account this year. Everyone at the meeting was in agreement that I was a unique financial freak at the company after I mentioned that I'm hitting the contribution limits for the 403b, 457 and my personal Roth IRA...
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Arbitrage

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My employer used to have an after-tax savings option, but they actually eliminated it several years ago.  I don't know if they had in-service non-hardship withdrawals.

The plan is changing in a few months from a 403(b) to a 401(k), so I'll be interested to see if this will be offered with the plan revamp.  I wasn't able to take advantage of it in the past (didn't yet have the income/savings rate to max out various tax-advantaged vehicles), but would have to look long and hard at it if it's offered this time around. 

CSuzette

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I work for a huge company and they said no. :(

Arbitrage

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My employer used to have an after-tax savings option, but they actually eliminated it several years ago.  I don't know if they had in-service non-hardship withdrawals.

The plan is changing in a few months from a 403(b) to a 401(k), so I'll be interested to see if this will be offered with the plan revamp.  I wasn't able to take advantage of it in the past (didn't yet have the income/savings rate to max out various tax-advantaged vehicles), but would have to look long and hard at it if it's offered this time around.

New plan will have after-tax contributions and in-service withdrawals, at least verbally from the guy I asked.  Waiting for the details, but it's looking up.