Author Topic: After-Tax Contributions with Roth In-Plan Conversions Versus Taxable Account  (Read 1157 times)

ForeverLearning

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Just when I thought we were starting to understand 401(k)s & their benefits, my husbandís Employer notified us that starting in 2018 they will be offering after-tax contributions with Roth In-Plan Conversions.

Iím trying to read as much as I can to understand the benefits to putting over the $18.5k limit (which is in a traditional 401k) in this new account versus just putting it in our taxable account. The letter said we can put up to $54k.

Is anyone else familiar with this account or is this another way to add more fees on top of what is being charged already?

Appreciate any pros or cons.

ixtap

  • Handlebar Stache
  • *****
  • Posts: 1512
Just when I thought we were starting to understand 401(k)s & their benefits, my husbandís Employer notified us that starting in 2018 they will be offering after-tax contributions with Roth In-Plan Conversions.

Iím trying to read as much as I can to understand the benefits to putting over the $18.5k limit (which is in a traditional 401k) in this new account versus just putting it in our taxable account. The letter said we can put up to $54k.

Is anyone else familiar with this account or is this another way to add more fees on top of what is being charged already?

Appreciate any pros or cons.

I am very new to this, having started my own thread on these after tax contributions just yesterday.

In plan Roth conversions are an alternative to the Mega Backdoor Roth IRA that we hear so much about. They are treated as Roth for tax purposes, but I do not believe that you have access to the contributions themselves as you do for a Roth IRA. It is still a reasonable option for long term planning.

Your employer may continue to match the after tax contributions.

As I understand it, the $54k is your regular contributions up to $18.5 + employer matching + after tax contributions.

As for the fees, what fees does your plan have?

ForeverLearning

  • 5 O'Clock Shadow
  • *
  • Posts: 30
We are charged a $3.25 recording fee every month.

I will look for your thread from yesterday. If your question is similar, I think I can still delete this thread so that there is not a duplicate.

ixtap

  • Handlebar Stache
  • *****
  • Posts: 1512
We are charged a $3.25 recording fee every month.

I will look for your thread from yesterday. If your question is similar, I think I can still delete this thread so that there is not a duplicate.

My question was specifically about the company match.

It sounds like you have a flat fee, and I don't see that they would change that. It is still something to verify, as they may charge the fee for each different type of contribution, if they think they can get away with it.

ForeverLearning

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Thank you ixtap. I will definitely verify with them.

Read your thread. My husbandís Employer will only match contributions on a Before-tax & Roth 401(k)s, but not with after-tax contributions.

MDM

  • Walrus Stache
  • *******
  • Posts: 9243
Iím trying to read as much as I can to understand the benefits to putting over the $18.5k limit (which is in a traditional 401k) in this new account versus just putting it in our taxable account.
It's pretty much the same as asking "what are the benefits of a Roth account vs. a taxable account?"

The answer is "one pays no tax on the gains in a Roth, while being subject to tax on dividends and capital gains in a taxable account."

ForeverLearning

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Thank you MDM.

Just want to make sure I understand:

Traditional:
$18.5k-Employer contributions + $7k-Employee contributions= $25k (Tax on Dividends/Capital Gains)

$54k - $25k= $29k (After-Tax Contribution)

$29k-Amount put into a Roth 401k (No tax on gains)

I think what is confusing me is do most people have a Traditional & Roth 401k in the same year as long as the Employer & Employee contributions do not go over $54k? Or do all contributions go into a Traditional 401k & then itís converted at the end of the year to a Roth account-whether itís a 401(k) or IRA?

gluskap

  • Stubble
  • **
  • Posts: 169
  • Age: 39
  • Location: Los Angeles, CA
    • Money Savvy Mommy
I wish my 401k had Roth in plan conversions.  It's just a way to put more than the $18.5k max contribution into a 401k.

ForeverLearning

  • 5 O'Clock Shadow
  • *
  • Posts: 30
Found a excellent article! Mad Fientistís website:

http://www.madfientist.com/after-tax-contributions/

I think I got it. Thank you everyone!