Author Topic: Getting employers to allow non-Roth after-tax contributions (mega backdoor)  (Read 286 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 »