Author Topic: Mega Backdoor Roth - What am I doing wrong?  (Read 1244 times)

aes421

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Mega Backdoor Roth - What am I doing wrong?
« on: April 17, 2019, 12:49:40 PM »
Hi all,

Last year I contributed $22,500 to my company 401k.  This means I contributed $4,500 after tax dollars.  I tried to fill out the form for converting it into a Roth IRA today, and it looks like the $4,500 are listed as "After tax matched" dollars.  If I move this money from 401k to Roth IRA I am going to become ineligible for company match (8%) for 3 months.

I called up Empower Retirement and they said the first 8% of every paycheck is matched.  Since the $4,500 I put in in December & November was less than 8% it was all matched and I'll be penalized for rolling it over.

Is there something I'm missing/not understanding?  Is my best bet to leave any after-tax company matched funds in the 401k (so the first 8% of every month after I hit 19k) and only roll over the after tax portion?

Also, does this mean if I decided to max early (first few months and then not contributing the rest of the year) I'd be missing out on free money??

Thanks in advance

ixtap

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #1 on: April 17, 2019, 12:58:38 PM »
Could you spread out your contributions so that you are contributing at least 8% to traditional the whole year and after tax is on top of that?

aes421

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #2 on: April 17, 2019, 01:06:19 PM »
I don't have a way to tell it to contribute pretax vs after tax.  I currently have it set to contribute 30% of my income which means I should hit 19k in September and then the first 8% of November/December will the "after tax matched" and the last 22% will be "after tax unmatched"

ixtap

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #3 on: April 17, 2019, 01:14:11 PM »
Does your plan include Roth and can you roll after tax to Roth 401k?

Does the match best at some point?

aes421

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #4 on: April 17, 2019, 01:35:03 PM »
My plan does include a Roth and that's exactly what I'm trying to do - Roll After Tax 401k to Roth 401k.

I just found I can split my contribution between both (your question prompted me to do some digging).  So I'm thinking I could setup $1,583 of paycheck goes to 401k to max it, and then the rest gets deposited straight into Roth 401k.  That will have the same effect right?


Only thing I'm concerned about is it doesn't say where the company match will go.

aes421

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #5 on: April 17, 2019, 01:43:47 PM »
I just realized that won't work because the limit for roth 401k + traditional 401k will still be only 18,000 and then I can only contribute additional after tax to traditional 401k.

ixtap

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #6 on: April 17, 2019, 01:55:06 PM »
I just realized that won't work because the limit for roth 401k + traditional 401k will still be only 18,000 and then I can only contribute additional after tax to traditional 401k.

What you said in the previous post won't work, but you may be able to roll after tax money to Roth 401k and keep the match.

aes421

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #7 on: April 17, 2019, 01:59:26 PM »
Unfortunately then fine print says if I roll from 401k to Roth 401k I'll forfeit my company match for the next 3 months :/.

I'm thinking my only choice her is to just leave the first 8% every month of after tax dollars in the 401k and roll over the unmatched portion to the Roth.  I'll lose out on a bit of tax sheltering, but I'll still get some.

ixtap

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #8 on: April 17, 2019, 02:13:22 PM »
Unfortunately then fine print says if I roll from 401k to Roth 401k I'll forfeit my company match for the next 3 months :/.

I'm thinking my only choice her is to just leave the first 8% every month of after tax dollars in the 401k and roll over the unmatched portion to the Roth.  I'll lose out on a bit of tax sheltering, but I'll still get some.

You originally said you were trying to roll to Roth IRA and encountered this issue, I am more surprised that it happens when keeping it within the 401k.

aes421

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Re: Mega Backdoor Roth - What am I doing wrong?
« Reply #9 on: April 17, 2019, 02:16:29 PM »
My mistake, it is a Roth 401k not IRA.  I am calling Empower back just to make sure the information I was given is correct.  I agree, it really doesn't seem to make sense to disqualify me from company matching just for rolling to a different account within the same company.
« Last Edit: April 17, 2019, 02:19:35 PM by aes421 »