Author Topic: 401K after-tax contributions  (Read 1139 times)

nach0s

  • 5 O'Clock Shadow
  • *
  • Posts: 10
401K after-tax contributions
« on: December 11, 2016, 01:29:33 PM »
My company allows us to contribute $20,000 after tax through Fidelity and option for roth ira conversion right away. Wouldn't it make more sense to max after-tax contributions to take advantage of my company funds' very low expense ratios? As oppose to investing through my individual roth ira / brokerage account? Also, does it matter If I convert the after-tax contributions to my Vanguard or Fidelity Roth IRA?

I'm not understanding my plan information so I hope I can get clarification. Thank you in advance!

In-plan Conversion - Roth 401(k):
401(k) Plan offers investments with very low expense ratios. The average investment expense for our participants is 0.27% while the industry average for other large Plans is 1.08%

Out of plan Conversion - Roth IRA
Investments are available through your IRA custodian. In general, you will not have access to the same low-cost fee structure that is available in the X 401(k) Plan.
« Last Edit: December 11, 2016, 01:36:54 PM by nach0s »

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4729
  • Age: 34
  • Location: Seattle, WA
Re: 401K after-tax contributions
« Reply #1 on: December 11, 2016, 01:33:32 PM »
I do the in-plan Roth conversion for the reason you state: the institutional expense ratios are a bit lower so I might as well take advantage of that.

One thing to keep in mind is that you might not be able to withdraw your Roth 401(k) funds until after you leave the company, while the Roth IRA funds are accessible immediately. I'll leave it to you to decide whether this is worth paying a couple hundredths of a percent more in fees.

nach0s

  • 5 O'Clock Shadow
  • *
  • Posts: 10
Re: 401K after-tax contributions
« Reply #2 on: December 11, 2016, 06:54:06 PM »
Thanks! Does it matter if I roll the funds into my Vanguard Roth IRA? My 401K plan is with Fidelity. Are only the gains taxed when you do the in-plan Roth conversion?

firelight

  • Handlebar Stache
  • *****
  • Posts: 1061
Re: 401K after-tax contributions
« Reply #3 on: December 11, 2016, 07:43:47 PM »
I do in plan conversion and move it to my vanguard Roth IRA. It's very simple and your vanguard and fidelity CS reps should walk you through it.

seattlecyclone

  • Magnum Stache
  • ******
  • Posts: 4729
  • Age: 34
  • Location: Seattle, WA
Re: 401K after-tax contributions
« Reply #4 on: December 11, 2016, 11:26:13 PM »
Only the gains are taxed on conversion whether you do in-plan or move to a Roth IRA. You can take the money to whichever IRA provider you prefer if you go the out-of-plan route.