Mega backdoor frequency

[LazerBeams]

Hello,

My wife's new fellowship employer allows for a partial mega backdoor Roth. The plan allows for an additional 10% of her salary to be contributed to her 401k after tax, and allows Roth in plan conversions. Her plan is with Fidelity.

This is the first time I've had an opportunity to take advantage of one of these plans and just realized that the process of roth conversion is not straightforward. It involves calling fidelity and takes some time to process. The contributions can only come out of her paycheck throughout the year.

So my question is -- folks with the mega backdoor option, how often do you actually do the Roth conversion? Annually? That timeframe feels like it risks having significant gains to convert. Ideally it would happen right after contribution but I can't imagine calling fidelity every two weeks to convert the newest contribution. How do people do this, practically speaking?

[Stroke doc]

The frequency can be limited by the employer plan. I have the MBD Roth option with my employer and Fidelity and they allow me to do the conversion once every 6 months. I have my Roth account at Fidelity also so it's a simple phone call. The earnings during those 6 months are taxable and I roll those over into my pretax 401k/403b plan but you can also roll it over into an IRA.

[spiritrider]

I guess it's just me, but is making a phone such a burden. Then again, my recent college graduate daughter would rather be waterboarded than pick up the phone and call some business.

[JBME]

I guess it's just me, but is making a phone such a burden. Then again, my recent college graduate daughter would rather be waterboarded than pick up the phone and call some business.

it really can be. I had a previous employer with the MBDR but the TPA didn't really understand the plan document. I had to always walk the person on the phone through the process and they still goofed every now and then. This was usually a 30-minute phone call. My plan allowed me to take the funds out every time I was paid so I was calling roughly every 2 weeks because I wanted to limit the taxable gains. It was a huge pain/annoyance. No regrets because I get the luck I had in having such a plan but I can see why regular Joe wouldn't put up with this.

OP please don't let the burden disincentive you. You do need to find out though how often you can take the funds out to roll over to a Roth IRA or do an in-service rollover to the Roth 401k portion of the plan. Some plans only allow once a year. Others once a quarter. Others any time. Do be prepared for a burden but it will be worth it

[wawot1]

My 401k plan at vanguard has an option to (almost?) Instantaneously do an in-plan conversion the moment the after-tax funds hit the account. You set it up once, and then every paycheck there's an immediate in-plan conversion.

[LazerBeams]

I guess it's just me, but is making a phone such a burden. Then again, my recent college graduate daughter would rather be waterboarded than pick up the phone and call some business.

Yeah, I just did a Roth conversion for my own 401k and it took a solid 30 minutes on the phone with somebody reading aloud the instructions she had on her end. The last time I did this a year ago they made a mistake that took a couple of months to correct. Definitely can come with some overhead that I'd rather avoid.

[LazerBeams]

it really can be. I had a previous employer with the MBDR but the TPA didn't really understand the plan document. I had to always walk the person on the phone through the process and they still goofed every now and then. This was usually a 30-minute phone call. My plan allowed me to take the funds out every time I was paid so I was calling roughly every 2 weeks because I wanted to limit the taxable gains. It was a huge pain/annoyance. No regrets because I get the luck I had in having such a plan but I can see why regular Joe wouldn't put up with this.

OP please don't let the burden disincentive you. You do need to find out though how often you can take the funds out to roll over to a Roth IRA or do an in-service rollover to the Roth 401k portion of the plan. Some plans only allow once a year. Others once a quarter. Others any time. Do be prepared for a burden but it will be worth it

Thanks for the tip... I'll have to look into that! Every two weeks just sounds like a pain. Especially since it's my wife's account, not my own.

[LazerBeams]

My 401k plan at vanguard has an option to (almost?) Instantaneously do an in-plan conversion the moment the after-tax funds hit the account. You set it up once, and then every paycheck there's an immediate in-plan conversion.

Sounds like a dream! This is what I imagined somehow when I read about MBDR on WCI. Just realizing now that it doesn't seem so straightforward with Fidelity

[JBME]

Thanks for the tip... I'll have to look into that! Every two weeks just sounds like a pain. Especially since it's my wife's account, not my own.

I would imagine your wife has to do this and you cannot

[StarTrekDoc]

We have fidelity. Agents know this process. 10min tops once you know the routine and able to script out the directions to the agent
I call every quarter during my lunch break

[Larry Ragman]

I have two different plans that allow MBDR. One is automatic and done every pay period. The other allows a manual transfer as often as I want, but it is a cumbersome process (e.g., requires signed documents). So for the latter I only do it once per year, but others at work do it quarterly.

[spiritrider]

Sounds like a dream! This is what I imagined somehow when I read about MBDR on WCI. Just realizing now that it doesn't seem so straightforward with Fidelity

This has nothing specifically to do with Fidelity, but rather the 401k plan's MBDR administrative rules. Many 401k plans allowing MBDR with Fidelity as the recordkeeper/administrator, support an automatic in-plan Roth rollover (IRR) every pay period.

[Drudge]

Really? I have fidelity with my job, and they offer automatic in plan conversions. Fidelity (not vanguard) actually was the first to set this automatic conversion up!

[Larry Ragman]

Really? I have fidelity with my job, and they offer automatic in plan conversions. Fidelity (not vanguard) actually was the first to set this automatic conversion up!

Really. Fidelity in your case is just executing your plan rules. Both of my plans are with Vanguard, but they are executed very differently because the plan (one 403b and one 401a) rules are different.

[CBCwDiffpls]

My employer plan (also fidelity) requires us to call it in, acknowledge we received an email from them during the phone call (happens instantly) and then the MBR is processed.