Originally posted by Tom Kazansky
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Originally posted by jacoavlu View Post
it should be maintained as a "basis" similar to what happens with backdoor Roth IRA.
if you make $5k nondeductible IRA contribution then convert to Roth a few days later at $4995, the $5 loss becomes basis and carries forward (on the 8606). if the next year you contributed $5k then converted a few days later at $5005, the $5 basis would offset the gain and you would owe no tax
I'm not sure if all 401k plans do this
Trying to understand what the consequences would be if converted in-plan.
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Originally posted by Tom Kazansky View PostWhat happens if you have a loss on an in plan after-tax roth conversion in a 401K?
For example a $5000 after tax contribution that is converted in plan to Roth at $4995?
I've heard it's a headache dealing with 8606/IRAs/Roth IRAs if you convert a non deductible contribution at a loss, but what happens within a 401K?
if you make $5k nondeductible IRA contribution then convert to Roth a few days later at $4995, the $5 loss becomes basis and carries forward (on the 8606). if the next year you contributed $5k then converted a few days later at $5005, the $5 basis would offset the gain and you would owe no tax
I'm not sure if all 401k plans do this
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What happens if you have a loss on an in plan after-tax roth conversion in a 401K?
For example a $5000 after tax contribution that is converted in plan to Roth at $4995?
I've heard it's a headache dealing with 8606/IRAs/Roth IRAs if you convert a non deductible contribution at a loss, but what happens within a 401K?
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wow! thanks that offers the proof I needed to understand the statement that taxable > post-tax 401k! I have since changed my after-tax 401k contributions to 0%.
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Originally posted by G0ld3n View PostBut for taxable you’re continually paying taxes on the dividends and distributions, while you don’t pay those if it were in an after tax 401k. Do you still think you end up paying less taxes in the taxable account?
Conveniently VG provides an after-tax return table. They calculate the returns based on the highest tax rates for income and capital gains. Unless you’re in the lowest tax bracket, converting all the returns to income in an after-tax 401k is going to cost you $.
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Originally posted by G0ld3n View PostBut for taxable you’re continually paying taxes on the dividends and distributions, while you don’t pay those if it were in an after tax 401k. Do you still think you end up paying less taxes in the taxable account?
the mathematically correct answer is unknowable bc it would require knowing the future
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But for taxable you’re continually paying taxes on the dividends and distributions, while you don’t pay those if it were in an after tax 401k. Do you still think you end up paying less taxes in the taxable account?
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Originally posted by happydoc90 View Postwhy would not converting after tax 401k contributions be worse than contributing to a taxable account?
taxable - gains are taxed at capital gains rate. step up basis at death. liquidity - sell and use cash if needed
after tax in 401k - gains are taxed at ordinary income rate at time of distribution. no step up basis at death. locked up in the plan until eligible for distribution
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why would not converting after tax 401k contributions be worse than contributing to a taxable account?
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Originally posted by G View Post
An interesting aside that just occurred to me...would there still be value in aftertax 401k that is not converted. Specifically, if the money would otherwise go to taxable, in the 401k, it would have ERISA protection, yes?
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I believe it's true and you'll get the ERISA protection but considering you'll be taxed on those after-tax gains at ordinary rates rather than capital gains, and the probability that you won't be sued above policy limits if you also have umbrella, it's still better to do taxable I think than after-tax if the after-tax eventually will be pulled out and you pay ordinary income tax on it
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Originally posted by G View Post
I don't know about common/uncommon, but we have all of that through Fido. May or may not end up being a good idea, but this year I started doing a Roth 401k. The rest of my space has thus far been filled with profit sharing. As I anticipate a lower income in 2021, I will see at the end of the year if a) I have space for after tax contributions and b) current law will allow Roth conversions.
An interesting aside that just occurred to me...would there still be value in aftertax 401k that is not converted. Specifically, if the money would otherwise go to taxable, in the 401k, it would have ERISA protection, yes?
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Originally posted by jacoavlu View Post
after tax 401k isn't that uncommon, most often seen w large employers / megacorps
option of both pretax and Roth deferral is common and many / most plans that offer both, would let someone split deferral among both if they wanted.
An interesting aside that just occurred to me...would there still be value in aftertax 401k that is not converted. Specifically, if the money would otherwise go to taxable, in the 401k, it would have ERISA protection, yes?
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Originally posted by happydoc90 View PostNew w2 job offers 401k, can contribute:
pretax 401k
roth 401k
posttax 401k
I've maxed the 19500 pretax. I'm confused on the difference between roth and posttax - is the roth still part of the 19500 and posttax like a taxable account? any benefit to contributing to that vs separate taxable account?
to be rolled over into the Roth 401k (Inplan Roth Rollover, IRR) or non-hardship in-service withdrawals that’s rolled over into your Roth IRA. If not, any growth is treated as pre-tax as noted by jacoavlu and likely has to stay in the plan until you separate. Then you can roll over after-tax contributions to your Roth IRA and earnings to either Roth IRA (income tax due) or tIRA (continue tax deferral).
Originally posted by happydoc90 View PostAm I correct in that the employer after tax contribution is growing tax free while a taxable account contribution does not? Seems like makes more sense to contribute rest of 58k limit to the after tax contribution in the employer 401k, right?
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