Author Topic: Impressed with the Fidelity 401k at my employer  (Read 543 times)

ericrugiero

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Impressed with the Fidelity 401k at my employer
« on: May 13, 2020, 12:38:28 PM »
I'm trying to get more money invested in the market in tax advantaged accounts so I checked with my employer about doing an after tax 401k deposit and then rolling it into a Roth 401k.  They said that it was possible so I tried it with a relatively small amount of money.  I couldn't find the option to do that online so I called Fidelity and the rep helped me with it.  He said they don't allow it to be done online (probably because of the potential tax implications if it's done wrong) but he did manually roll over what I already deposited AND he set up automatic roll overs for any future after tax 401k deposits.  This makes it as simple as maxing my traditional 401k and then putting extra into an after tax 401k.  (total contribution can be up to 50% of my pay)

This is a pretty sweet option I didn't know my company offered.  I'll be putting $19,500 in my traditional 401K this year and also putting money into a Roth 401k with this rollover option.  This money can be rolled to my existing Roth IRA in the future and used (at least the contributions) for the 5 years until a Roth conversion ladder can kick in.   

I also found out for sure that if I get carried away and reach the $19,500 limit before the end of the year I won't get the company match for any remaining paychecks.  I'll have to be careful about that so I don't miss out on the match. 

Paul der Krake

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Re: Impressed with the Fidelity 401k at my employer
« Reply #1 on: May 13, 2020, 03:13:25 PM »
Nitpick: it won't be a Roth 401(k), it will be an after-tax 401(k) that you can then rollover to a Roth IRA.

But otherwise, congratulations, you have hit the retirement plan jackpot. This setup is colloquially know as the "mega backdoor Roth". Search that phrase for more details, if you're so inclined.

terran

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Re: Impressed with the Fidelity 401k at my employer
« Reply #2 on: May 13, 2020, 03:37:00 PM »
Nitpick: it won't be a Roth 401(k), it will be an after-tax 401(k) that you can then rollover to a Roth IRA.

Actually, from the sounds of it it will be an after-tax 401(k) that they can rollover to a Roth 401(k). End result: Roth 401(k). This is another version of the so called mega backdoor Roth that works just as well (unless you have gains in which case rolling over to IRA so you can split the gains off into a traditional IRA can be slightly preferable).

Paul der Krake

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Re: Impressed with the Fidelity 401k at my employer
« Reply #3 on: May 13, 2020, 03:39:03 PM »
Nitpick: it won't be a Roth 401(k), it will be an after-tax 401(k) that you can then rollover to a Roth IRA.

Actually, from the sounds of it it will be an after-tax 401(k) that they can rollover to a Roth 401(k). End result: Roth 401(k). This is another version of the so called mega backdoor Roth that works just as well (unless you have gains in which case rolling over to IRA so you can split the gains off into a traditional IRA can be slightly preferable).
Nice! I didn't know this was an option.

ericrugiero

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Re: Impressed with the Fidelity 401k at my employer
« Reply #4 on: May 14, 2020, 05:42:29 AM »
Nitpick: it won't be a Roth 401(k), it will be an after-tax 401(k) that you can then rollover to a Roth IRA.

Actually, from the sounds of it it will be an after-tax 401(k) that they can rollover to a Roth 401(k). End result: Roth 401(k). This is another version of the so called mega backdoor Roth that works just as well (unless you have gains in which case rolling over to IRA so you can split the gains off into a traditional IRA can be slightly preferable).

Yes, this is true.  In my case, the company doesn't allow me to roll money out of the retirement plan into a Roth IRA.  But, I can roll it to a Roth 401k inside the company plan which accomplishes basically the same thing.  When I end up leaving the company I can roll it to a Roth IRA then so the money ends up the same place. 

I knew how the mega backdoor Roth IRA worked but didn't think it was a good option for me (because no in-service withdraws allowed) but this is another route that is available and works just as well.  Bonus points for being easy.  Just set up automatic rollover from after tax 401K->Roth 401K and automatic deposits into after tax 401K.  No hassle and no taxes on growth. 
« Last Edit: May 14, 2020, 06:17:03 AM by ericrugiero »

uneven_cyclist

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Re: Impressed with the Fidelity 401k at my employer
« Reply #5 on: May 14, 2020, 02:14:59 PM »
I'm not sure how much income you are earning, but you may also consider contributing to or maxing out a Traditional IRA before contributing to the Roth 401(k) in order to maximize your deductions.  There is a table at the IRS website that shows the income limits, but if memory serves, basically as long as your AGI is below 104K then you should be able to claim a deduction for Traditional IRA contributions even if you're participating in an employer plan.

MDM

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Re: Impressed with the Fidelity 401k at my employer
« Reply #6 on: May 14, 2020, 05:48:25 PM »
There is a table at the IRS website that shows the income limits, but if memory serves, basically as long as your AGI is below 104K then you should be able to claim a deduction for Traditional IRA contributions even if you're participating in an employer plan.
$104K is for MFJ in 2020.  See IRA Deduction Limits | Internal Revenue Service for all the numbers.

Gatzbie

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Re: Impressed with the Fidelity 401k at my employer
« Reply #7 on: May 14, 2020, 06:43:00 PM »
I have been utilizing this same feature for a year now. Works like a charm. No rollover fees, limits, check/letter writing, or need to roll over after-tax earnings into a Traditional IRA as none will exist. Taken from my 401k plan:

“Automatic After-tax Roth In-Plan Conversion” feature, activated by calling. With this feature, After-tax Contributions are automatically converted to Roth contributions on a daily basis (i.e., before those contributions accrue any taxable earnings). "

See picture for how your contribution will show on the Fidelity website:
« Last Edit: May 14, 2020, 06:54:27 PM by Gatzbie »