complicated mega back door questions: pre-tax vs after-tax contribution order

[Case]

After checking this out a whole lot, it seems that I am able to do a mega backdoor Roth contribution with my employer.  A caveat is that my plan only allows me to roll over from my after-tax to my Roth twice a year. Also, I can only contribute 40% of each pay check in total to the 401k (some combination of pre and after-tax contributions).  Of course, I am going to max out my pre-tax contribution and get the full company match; what I'm trying to decide is whether to front-load or not, and when to start after-tax contributions.

What I am trying to figure is how to fund it. 

Originally, I was going to first max out my pre-tax account, and then switch to maxing out my after-tax account (which I then later roll over in the roth)
-pros:  effectively front-load the pre-tax
-cons:  less efficient conversion of post-tax to Roth, because

Alternatively, I could contribute to the pre-tax and after-tax at the same time, which allows me to more efficiently transfer the after-tax to the Roth.

Does anyone have suggestions?  Also, I guess I might as well invest the after-tax 401k prior to converting to the Roth?  Even though the earnings will incur tax at my income level, it's better than having no earnings at all?

[Aggie1999]

Max the pre-tax first, as that will lower the dollars taken out for taxes per paycheck, meaning you have additional money per paycheck to put into a normal taxable account sooner, thus taking advantage of time in the market. Examples:

Scenario Pre-tax first:

- Pay check before taxes: $4000
- Pre-tax contribution: $2000
- Assume 25% tax rate
- Take home: $2000 x 0.75 = $1500

Scenario Split between Pre-Tax and After-Tax:

- Pay check before taxes: $4000
- Pre-tax contribution: $1000
- After-tax contribution: $1000
- Assume 25% tax rate
- Take home: ($3000 x 0.75) - $1000 = $1250

On the after-tax question, definitely invest it. When you do the in-service rollover the after-tax basis goes in a Roth IRA while the earnings go in a traditional IRA. At least that is how it is done with my company. You don't pay taxes on the earnings until withdraw from the tIRA, presumably years later.

[Aggie1999]

BTW, make sure you understand the rules around the company match if you max out your pre-tax/roth 401k before the year is up. The company match will stop once you hit the pre-tax/roth 401k max. Then it's individual company rules if they provide a catch-up/true-up contribution at some time later. For example my employer does the true-up contribution in Q1 of the following year but the catch is one has to be employed by the company on Dec 31st. I've also read on this forum that some companies don't do true-up contributions at all.

[MDM]

Does anyone have suggestions?

Determine whether, as Aggie1999 notes, front-loading will decrease your employer match, as described in Too Fast to Match? This 401(k) Misstep Could Hurt Retirement Savings

Also, I guess I might as well invest the after-tax 401k prior to converting to the Roth?  Even though the earnings will incur tax at my income level, it's better than having no earnings at all?

Yes to both.

[Case]

BTW, make sure you understand the rules around the company match if you max out your pre-tax/roth 401k before the year is up. The company match will stop once you hit the pre-tax/roth 401k max. Then it's individual company rules if they provide a catch-up/true-up contribution at some time later. For example my employer does the true-up contribution in Q1 of the following year but the catch is one has to be employed by the company on Dec 31st. I've also read on this forum that some companies don't do true-up contributions at all.

Thanks for all of the info!
My company has the same true up policy.  However, they continue to match while I'm doing after-tax contributions, so I probably wont need  a true up.

[Proud Foot]

It sounds like you have the match portion all figured out.  Something else to consider would be if you were to lose the job and no longer being able to contribute to a 401k.  Would you rather have only had $10,000 in the 401k pretax and $10,000 aftertax? Or to have already maxed out the tax advantages space of $18,000 and then have $2,000 as after tax?