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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Goldy on February 15, 2017, 12:03:56 PM

Title: Mega Backdoor Roth Help
Post by: Goldy on February 15, 2017, 12:03:56 PM
My company has just switched 401k providers and so far it looks like I might be able to participate in the coveted mega backdoor roth but I have a few questions.

It looks like I can contribute both pre-tax and after tax at the same time which means I won't lose my 6% match by aggressivly investing in the 401k. I am currently testing this to make sure this is the case and will know by the next pay period at the end of the month.

I can rollover my non-pretax to a roth using an "in-kind transfer" and it even looks like I can send it directly to my Vanguard roth account which is great.

Here is my concern. It is currently saying I have 65k of non-pretax money to roll over however, I have only contributed about 3k of after tax money. The remaining 62k is from additional contributions from work above and beyond the 6% match. We get a 6% match but also a 6% profit sharing. So, this profit sharing is apparently fair game to transfer but if I transfer the full 65k will I be taxed on the entire amount or just the gains in the 65k? The gains could be 20-30k, I'll need to look into that.

Once I get past that hurdle I think the rest is pretty straight forward, calculate how much money from me and the employer there is each year and contribute the difference from that and the cap as after tax, then transfer it to the roth.

My wife also works for the same company so if we can get this to work we can have double mega backdoor roths going which would be awesome.
Title: Re: Mega Backdoor Roth Help
Post by: SeattleCPA on February 15, 2017, 12:13:58 PM
I am not an expert on these, and will happily defer to some professional who's handled these transactions a few dozen times.

But here's my understanding. I think the way it works is you can do in-plan transfer of aftertax money without tax hit... as long as that money is in a separate subaccount so it's clear you're moving only aftertax money.

But, I bet you have some pretax money in the some subaccount.. I.e., you put in $10K after taxes... but between that deposit and then time you did in-plan transfer, the $10K grew to $11K. In that case, if you transfer even only just $10K, I think 10/11ths is tax free and 1/11th is taxed.

FWIW, I doubt it makes sense to convert pretax money to a Roth. Too expensive.