Author Topic: New 401k Rules?  (Read 1536 times)

Prchawkeye

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New 401k Rules?
« on: March 14, 2015, 08:06:22 PM »
http://finance.yahoo.com/news/save-money-recent-ira-401-181500169.html;_ylt=AwrBJR7p3wRVo2kAcDuTmYlQ

Found the above article on Yahoo. Apparently you can contribute above the 18k limit to a 40lk and put the balance over 18k into a Roth. If I read the article correctly you wouldn't pay taxes as you would on a rollover and there are no income limits.

Does anyone have any experience with this?

In 2014 my income went over the maximum threshold for contributing to a Roth so this could be a great option for 2015.

mrshudson

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Re: New 401k Rules?
« Reply #1 on: March 14, 2015, 09:13:37 PM »
It's confusing at best, and misleading at worst:

Quote
The development affects employees with both pretax and after-tax 401(k) investments whose high incomes made them ineligible for a Roth IRA and whose employers didnít offer a Roth 401(k). When those folks exited their jobs, they faced a tax dilemma. If they rolled over investments into a Roth IRA, they would have to pay income tax on the tax-deferred portion of the 401(k).

???

I'd be wary of any article that tells you about "recent" IRS rules, without actually citing to the exact rule in question. The rule they do cite to relates to the myRA, which says nothing about rollovers. And note, you are eligible for myRA only if your employer does not have a 401(k) at work. At a first glance the modified AGI limits for Roth and myRA seem to be similar, so not really any advantage for someone whose income doesn't qualify them for a Roth.



patricles

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Re: New 401k Rules?
« Reply #2 on: March 14, 2015, 10:05:00 PM »
It sounds like you're describing a Mega Backdoor Roth, explained well by the Mad Fientist:
http://www.madfientist.com/after-tax-contributions/

Contributions above the 18k limit are made after-tax and are taxed upon withdrawal in retirement, so the trick is to immediately roll them over into a Roth once you make the contribution.  You do not get to deduct any contributions made above the 18k limit although the rollover will not be taxed (any gains you accrue before rolling over will be taxed).

If you're above the income limits for Roth IRA contributions a normal Backdoor Roth contribution would be an option.  The Mad Fientist describes that as well.