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Mega Backdoor Roth Question

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  • Mega Backdoor Roth Question

    [edit] answered my own question...

  • #2
    [edit] Probably worth noting for those interested in the Mega Backdoor Roth, there is a great thread on this reddit: -- the discussion there is very good on this topic.

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    • #3
      Maybe to recap for posterity, the essence of the question was about how to handle earnings in the after tax portion of the 401k. IE: 30K contribution and 10K of earnings. As in the above reddit article, you'l end up with:

      1. Check#1 with your after-tax contributions (your "basis") in the amount of 30k. This gets moved to a Roth IRA in a "trustee-to-trustee" transfer.
      2. Check#2 with your gains from the after-tax 401K. This gets moved to a traditional IRA so that you don't get a tax penalty for early distribution

      3. The traditional IRA amount is going to bug you because it will trigger pro-rata rules if you routinely do a regular "backdoor roth" so solution is to roll that amount back to your 401K -- if your plan allows -- or just bite the bullet and roll it over to a Roth and pay the tax to do so.

      Please someone correct me if I'm wrong on this.

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      • #4




        Maybe to recap for posterity, the essence of the question was about how to handle earnings in the after tax portion of the 401k. IE: 30K contribution and 10K of earnings. As in the above reddit article, you’l end up with:

        1. Check#1 with your after-tax contributions (your “basis”) in the amount of 30k. This gets moved to a Roth IRA in a “trustee-to-trustee” transfer.
        2. Check#2 with your gains from the after-tax 401K. This gets moved to a traditional IRA so that you don’t get a tax penalty for early distribution

        3. The traditional IRA amount is going to bug you because it will trigger pro-rata rules if you routinely do a regular “backdoor roth” so solution is to roll that amount back to your 401K — if your plan allows — or just bite the bullet and roll it over to a Roth and pay the tax to do so.

        Please someone correct me if I’m wrong on this.
        Click to expand...


        If you have your own 401k plan, you can simply do in-plan Roth conversions.  The after tax stuff might be useful if your employer allows it.  Other than that, it is completely obsolete after the introduction of a one-step conversion to Roth of your entire 401k, provided that you control the plan document.
        Kon Litovsky, Principal, Litovsky Asset Management | Konstant[email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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        • #5
          The only time after-tax can be useful is when your net is very low.  I'm still waiting for in-plan Roth conversion of after-tax contributions, this is not yet officially allowed, but I would only do the after-tax if/when this is allowed.  For one thing, the whole yearly withdrawal of after-tax contributions is a mess, but also not something that is recommended by third party administrators at this time, so despite being possible, I'd wait until in-plan Roth conversion of after-tax assets is approved by the IRS prior to using the after-tax option.
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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