Author Topic: Employer doesn't allow post tax contributions and in service withdrawals.  (Read 2449 times)

jamesbond007

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My employer doesn't allow post tax contributions to 401K and in service withdrawals. I hoped to do a mega backdoor roth :( What are my options now? Can I still do a backdoor roth?

My gross income is $175,000 per year plus an additional about 20% bonus paid out twice a year (10% per bonus paycheck). I max out on my 401K and get a 100% match on the 1st 5%.

Please advise. I have been investing my money in Vanguard so far. But just started looking at mega back door as I started making this income just recently.

Paul der Krake

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #1 on: September 30, 2016, 04:31:54 PM »
Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

jamesbond007

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #2 on: September 30, 2016, 04:54:46 PM »
Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

bearkat

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #3 on: September 30, 2016, 06:05:55 PM »
Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Anyone* with earned income over $5,500/yr (or anyone who is married to someone with earned income over $11,000/yr) can take advantage of a backdoor IRA.

1. Open a non-deductible Traditional IRA at your brokerage of choice and fund with $5,500 (or desired amount)
2. Next day (ish) call your brokerage firm and convert your Traditional IRA into a Roth IRA
3. Make sure it actually worked and went through as you wished
4. Celebrate!

Now whether it is advantageous to you to do the above depends on many things including your temperament, gender, and hand size ... but here is a great thread to read about some things to consider: http://forum.mrmoneymustache.com/taxes/go-curry-cracker-roth-vs-taxable/


*I'm sure I'm missing some detail, so the asterisk is here just in case.


Happy Hunting!

Proud Foot

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Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Yes you can do the backdoor ROTH and yes it makes sense at your income level.  You do not get a tax break on contributions on the traditional IRA but when you make a non-deductible contributions and then roll to a ROTH you can take advantage of the tax free growth.  Things get a little more complicated if you already have a traditional IRA in place.

jamesbond007

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Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Yes you can do the backdoor ROTH and yes it makes sense at your income level.  You do not get a tax break on contributions on the traditional IRA but when you make a non-deductible contributions and then roll to a ROTH you can take advantage of the tax free growth.  Things get a little more complicated if you already have a traditional IRA in place.

Thanks. I will look into tIRA at Vanguard. I don't have any other IRA whatsoever. I haven't opened an IRA with thoughts of doing a mega back door. I realize you pay taxes on all of your IRAs when you convert? I think I am safe there.

jamesbond007

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Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Anyone* with earned income over $5,500/yr (or anyone who is married to someone with earned income over $11,000/yr) can take advantage of a backdoor IRA.

1. Open a non-deductible Traditional IRA at your brokerage of choice and fund with $5,500 (or desired amount)
2. Next day (ish) call your brokerage firm and convert your Traditional IRA into a Roth IRA
3. Make sure it actually worked and went through as you wished
4. Celebrate!

Now whether it is advantageous to you to do the above depends on many things including your temperament, gender, and hand size ... but here is a great thread to read about some things to consider: http://forum.mrmoneymustache.com/taxes/go-curry-cracker-roth-vs-taxable/


*I'm sure I'm missing some detail, so the asterisk is here just in case.


Happy Hunting!

Thank you. I will talk to Vanguard today.

Vilgan

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Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

I wouldn't stress about it too much at this point. The after tax conversion stuff (including mega roth backdoor) has a giant target on its back now and will probably no longer be available in a year or two. Not only that, but many companies don't have the buffer in their ACP testing to allow for it.

Paul der Krake

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The after tax conversion stuff (including mega roth backdoor) has a giant target on its back now and will probably no longer be available in a year or two.
What makes you think that?

Congress would need to start passing laws again...

starguru

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Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Anyone* with earned income over $5,500/yr (or anyone who is married to someone with earned income over $11,000/yr) can take advantage of a backdoor IRA.

1. Open a non-deductible Traditional IRA at your brokerage of choice and fund with $5,500 (or desired amount)
2. Next day (ish) call your brokerage firm and convert your Traditional IRA into a Roth IRA
3. Make sure it actually worked and went through as you wished
4. Celebrate!

Now whether it is advantageous to you to do the above depends on many things including your temperament, gender, and hand size ... but here is a great thread to read about some things to consider: http://forum.mrmoneymustache.com/taxes/go-curry-cracker-roth-vs-taxable/


*I'm sure I'm missing some detail, so the asterisk is here just in case.


Happy Hunting!

Thank you. I will talk to Vanguard today.

Yikes be very careful.  If you already have a traditional IRA I believe there are tax consequences to this.


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jamesbond007

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #10 on: October 04, 2016, 02:02:52 PM »
Backdoor Roth and Mega Backdoor Roth are two completely different things.

For the latter, your only options are:
1) Lobby employer to add that option
2) Find another employer with that option

Unfortunately it's a major pain in the rear to figure out which employers have plans that make this feasible.

How about back door? Can I do it myself? Does it even make sense at my income level in terms of tax advantage?

Anyone* with earned income over $5,500/yr (or anyone who is married to someone with earned income over $11,000/yr) can take advantage of a backdoor IRA.

1. Open a non-deductible Traditional IRA at your brokerage of choice and fund with $5,500 (or desired amount)
2. Next day (ish) call your brokerage firm and convert your Traditional IRA into a Roth IRA
3. Make sure it actually worked and went through as you wished
4. Celebrate!

Now whether it is advantageous to you to do the above depends on many things including your temperament, gender, and hand size ... but here is a great thread to read about some things to consider: http://forum.mrmoneymustache.com/taxes/go-curry-cracker-roth-vs-taxable/


*I'm sure I'm missing some detail, so the asterisk is here just in case.


Happy Hunting!

Thank you. I will talk to Vanguard today.

Yikes be very careful.  If you already have a traditional IRA I believe there are tax consequences to this.


Sent from my iPhone using Tapatalk

Thanks for the word of caution. I do not have any tIRA. I haven't opened any IRAs in hopes of doing a mega door roth one day and that day has come. But the sad part is that my employer doesn't allow for it.

Oh well...

So I have another question. Can I do it next year before the tax deadline? The reason is that I started having this kind of income since May. So I am not sure how accurately I can calculate my AGI to determine the amount to put into ROTH and do then do a backdoor. Does it make sense? Or it doesn't make a big difference either way?

Vilgan

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #11 on: October 05, 2016, 01:56:39 PM »
The after tax conversion stuff (including mega roth backdoor) has a giant target on its back now and will probably no longer be available in a year or two.
What makes you think that?

Congress would need to start passing laws again...

Its been in every recent tax proposal, including the Obama plan and then new one proposed in the senate. Obviously, as long as Congress continues to not pass anything there won't be any changes - but it is on the radar now and would presumably have a good chance of being included whenever Congress DOES finally pass something related to taxes.

spud1987

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #12 on: October 05, 2016, 02:01:15 PM »
The after tax conversion stuff (including mega roth backdoor) has a giant target on its back now and will probably no longer be available in a year or two.
What makes you think that?

Congress would need to start passing laws again...

Its been in every recent tax proposal, including the Obama plan and then new one proposed in the senate. Obviously, as long as Congress continues to not pass anything there won't be any changes - but it is on the radar now and would presumably have a good chance of being included whenever Congress DOES finally pass something related to taxes.

This is true. I'm a tax lawyer and regularly work on DC legislative issues and fixing the backdoor/mega backdoor roth "loophole" is a proposal that has bipartisan support. There is a good chance that something is passed with any extender bill at the end of this year.

I'm taking advantage of the mega backdoor roth now but I certainly wouldn't plan on it being there in 2017 or later.

Paul der Krake

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #13 on: October 05, 2016, 02:05:30 PM »
Thanks for the heads up! Always nice to have an insider's view.

It was nice while it lasted.

MrMoogle

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Re: Employer doesn't allow post tax contributions and in service withdrawals.
« Reply #14 on: October 05, 2016, 02:22:59 PM »
*snip*

Thanks for the word of caution. I do not have any tIRA. I haven't opened any IRAs in hopes of doing a mega door roth one day and that day has come. But the sad part is that my employer doesn't allow for it.

Oh well...

So I have another question. Can I do it next year before the tax deadline? The reason is that I started having this kind of income since May. So I am not sure how accurately I can calculate my AGI to determine the amount to put into ROTH and do then do a backdoor. Does it make sense? Or it doesn't make a big difference either way?
If you don't have a tIRA, it doesn't really matter what your AGI is if your goal is getting it into a Roth.  You can just put it in a tIRA, then move it over to a Roth.  If it's low enough, because you're only getting paychecks for half the year, yes, you can go straight to a Roth IRA, but why wait until you figure it out?

I can't do this, since I already have a tIRA, it is beneficial to get as much as I can into Roth before putting some in the tIRA.  It makes things complicated if you already have a tIRA.  If I ever get to the Roth limit, I'll just do after-tax.