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Mega backdoor Roth - roth 401k or roth ira?

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  • Mega backdoor Roth - roth 401k or roth ira?

    Hi all,

    New employer allows aftertax 401k contributions and in-service rollover - Is it preferable to rollover to a Roth-401k or to a Roth IRA if both options are possible? Is there any difference?

    It seems to me that the Roth 401k would be better since 401k's have better protection (ERISA) but the downside is that it will require RMDs. Are there any special considerations if I was to consider a Roth 401k to Roth IRA conversion in the future?

    Is there anything else I'm overlooking?

  • #2




    Hi all,

    New employer allows aftertax 401k contributions and in-service rollover – Is it preferable to rollover to a Roth-401k or to a Roth IRA if both options are possible? Is there any difference?

    It seems to me that the Roth 401k would be better since 401k’s have better protection (ERISA) but the downside is that it will require RMDs. Are there any special considerations if I was to consider a Roth 401k to Roth IRA conversion in the future?

    Is there anything else I’m overlooking?
    Click to expand...


    You're one of the lucky ones - congratulations! Choose the Roth 401k option and then roll your Roth 401k balance over to a Roth IRA before you turn 70.5.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Yes, fees and investment options may vary between your Roth401k provider, and your RothIRA.  My wife and I both do this, but her company plan has high fees and poor options, so she rolls into a RothIRA.  My company plan has low fees and great options, and free asset allocation robo-adviser tools, so my after proceeds get converted to the Roth 401k.  As Johanna Fox Turner advises, we will roll mine over to a RothIRA before age 70.5.

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      • #4
        I wouldn't necessarily use it as the highest priority, but with other factors being a wash the Roth 401k has better asset protection. This is especially true, if you are someone with significant potential liability as many of the members of this forum are.

        A 401k has ERISA anti-alienation protection that prevent creditors with the exception of IRS liens and specific court orders relating to divorce and child support from access to your 401k assets.

        A rollover to a Roth IRA will have federal bankruptcy protection, but not creditor protection. This leaves you at the mercy of your state laws. There are twice as many states (~= 10) that limit creditor protection for Roth IRAs, than the number of states (~= 5) that limit creditor protection for traditional IRAs.

        If this is an important factor for you, make yourself aware of your particular state's laws. For example, CA limit's your IRA creditor protection to a reasonable level of family support. Note: This is not support of your family's lifestyle but rather a modest lifestyle

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