Backdoor traditional 401k-> Roth IRA

[chucklesmcgee]

I need some 401k Rollover information. Here's the deal: I've got a self-administered Roth 401k plan in a single-owner/single-employee S-corp, it's just me pulling all of the strings. Only the employee contribution is Roth. The employer contribution is traditional- and can be very sizeable. I want to maximize the amount of tax-exempt earnings and Roth contributions.

Can I make my employer 401k contributions for the year one day, "resign" as CEO the next day, initiate a 401k rollover of just the employer contributions to a traditional IRA then convert the traditional IRA to a Roth IRA the day after, effectively making my traditional contributions basically as Roth contributions, then be hired on again by "the board" and repeat this every year?

[Able was I ERE]

Does your 401k administrator offer an in-service distribution?  This would allow you to effect the same thing, but with fewer hoops to jump through.

[matt_g]

I do not know the answer to your question.  I'm pretty sure you'd be paying income tax on the money when you roll it over from a traditional to a roth.  I just went through this with my tax person.  Here are a few things to investigate.

1. Individual 401K or I401k - You can contribute 100% of the first 17k you make plus 25% after that, up to $50k , if your spouse is also employed by your company, she can do the same, so that's potentially another $50k depending on how much you make.  That's a sizable amount of cash pre-tax.

2. Roth IRA another $5k for you and $5k for your spouse.  I understand this is POST tax money, but if you look into this, you'll see its good to have both.  You can roll this over to your kids, no forced distributions, use it to adjust your income level and you never pay tax on it again.   If you are over the income limits: http://en.wikipedia.org/wiki/Roth_IRA [see Traditional IRA conversion as a workaround to Roth IRA income limits]

[chucklesmcgee]

I'm pretty sure you'd be paying income tax on the money when you roll it over from a traditional to a roth. 

Obviously. But if there haven't been any earnings, then contributions to a traditional 401k then rolled over and converted to a Roth will be taxed exactly as they would be if they were Roth contributions in the first place.

1. Individual 401K or I401k - You can contribute 100% of the first 17k you make plus 25% after that, up to $50k , if your spouse is also employed by your company, she can do the same, so that's potentially another $50k depending on how much you make.  That's a sizable amount of cash pre-tax.

Yes. It's also a sizeable amount of cash post-tax if rolled over and converted.

I understand this is POST tax money, but if you look into this, you'll see its good to have both

For me, I believe it's best to have as much post-tax money as possible. I'm fairly young, earning a large income and believe our marginal tax rates will look more like Carter-era tax rates 40 years down the line than today's Bush-Clinton-era rates, maybe much worse for very high income earners.

http://en.wikipedia.org/wiki/Roth_IRA [see Traditional IRA conversion as a workaround to Roth IRA income limits]

I wrote of most of that.

Does your 401k administrator offer an in-service distribution?  This would allow you to effect the same thing, but with fewer hoops to jump through.

That's a nifty idea. I'll check my plan and if it doesn't include that I'll amend it.