I’m positive I rolled my small traditional Ira into my 401k before I started Roth conversions.
I now mainly do just small Roth conversions on after tax dollars that are nondeductibke —amounts I contribute to traditional IRAs. I’m not converting the other amounts as it makes no sense to bother converting other sums and pay taxes as our current tax bracket is fairly high already. D is in a very low tax bracket and I could leave the funds to her.
Definitely start a Bogleheads.org thread and ask your questions there. The folks are very helpful on details.
Our after-tax 401K rolled over into two Roths each - one for contributed $, one for earnings. The 401K admin / our former employer provided the money in two parts. The advantage will come when we take mandatory distributions and we can control when those $ are used.
So I’m guessing that you must have had to pay taxes on the pretax portion that was rolled over into a Roth, @zeebamom? I wonder why they rolled it into two separate Roths. Maybe they are required to separate it, even if it’s all Roth.
The 4 Roths are for the after tax 401k only. After tax contributions into one and earnings we had on them in others for each of us. We’ll avoid taxes on the earnings portions until we start to withdraw at 70 1/2. The pre-tax 401ks are still with our old employer’s plans.
We were in the FA office to make the calls to get the transfer done. Opened the Roth accts, had the convo, directed checks payable to the IRA, and it was done. It sounded like it was very common. My husband’s old co-workers were doing this annually.
Honestly, even though I was a financial accountant for 30+ years, most of this has me shaking my head. I get why we’re doing things and understand fees and so forth, but it’s far more complicated than I expected. Lots of reading to be done.
Until now, for simplicity we’ve done only tax-deferred 401K. Our financial planner may advise some Roth conversions, but we’ll definitely need to study/understand it all before diving in. Once we mix/match, will no longer be as simple.
I am confused with your terminology. Busdeiver11 and zeebamom…401k account are all pre-tax. There are no after-tax 401ks… There are however aftertax Individual Roths, Traditional IRAs and of course individual brokerage accounts. .
@calmom17, you are mistaken. There are 3 kinds of 401k sub-accounts (usually in the same 401k account).
The one we’re all familiar with is traditional (t401k), which is pre-tax, taxed as income when distributed.
Another is Roth (r401k), which is funded by funds that have been taxed (ie, just like a rIRA, except that the employer will do the deducting). These funds should, at retirement, be moved to a rIRA (unless the somewhat better legal protections matter to you in your state), since a r401k is subject to RMDs, while a rIRA is not.
Finally, for the lucky few whose employers make it available, is after-tax 401k. This is NOT a Roth. Among other things, the limits are considerably higher (I forget, since we’re not eligible and I’m lazy, but it’s somewhere north of $50k/year). This is the account type that provides the funds for a mega backdoor Roth.
We decided, this year, to finally start funding our r401k. That’s a nobrainer if taxes will be higher at retirement. We don’t expect a materially higher or lower tax rate at retirement, but even if it’s lower, there are other benefits of a r401k.
My last three or four companies have all offered Roth 401k’s. The tax savings for the regular 401k is just too high, so I’ve never contributed to the Roth.
I can’t do a backdoor Roth IRA, I have way too much in traditional IRAs.
Apparently my current plan does allow rollovers into it. My current plan sucks though - the fees are high, the choices are not that great.
When you do a backdoor Roth, would only my tIRA balances be counted, or both DW’s and mine?
2018, thanks to tax reform and mostly AMT reform, will be the first year in a long time where our combined Fed+State marginal rate will be under 40%. We just haven’t felt like squeezing to make Roth contributions after maxing out pre-tax 401k and SEP-IRA contributions.
Not sure what our incremental rate this year will be, and it will depend on whose income you are considering since we qualify for the QBID deduction.
My company offers all three 401K’s as @IxnayBob described, but the Roth 401K has just been offered since 2016. So we have funds in all three, before tax, after tax, and Roth 401K. Still confused after looking at the Bogleheads forum though, but I think I have it close.
In order to do the mega Roth, we have to put in after tax contributions into our 401K. Then we convert those contributions within the plan into our Roth 401K. If we do it quickly enough, there are no gains.
But before that, we have to deal with the after tax funds in our 401K so we don’t have tax consequences from the mega Roth. We roll over the after tax contributions into a Roth (guessing we roll it over to our Roth 401K, not a new Roth IRA, though I don’t know if it matters?) and then the earnings are considered pre-tax, so they are rolled over into a traditional IRA, which we don’t pay taxes on until we withdraw.
However, I still don’t understand why creating this new traditional IRA doesn’t cause tax problems for the mega Roth! Why, oh why, does this have to be so confusing? Or am I just an idiot?
NRE, tIRA balances are always counted Individually (the I in IRA).
ETA: with sucky 401ks, a lot depends on how many years of tax free growth and withdrawal you’re anticipating. Longer time favors Roth. Shorter time, not.
Our city deferred comp plan allows us to put 24K per year into a Roth plan. I’m not sure how that fits with the info above, but there are no rollovers or conversions or anything like that…
Lots of things get combined for tax purposes when you are married filing joint, so it is not obvious that only my IRA balances would be considered when doing a backdoor Roth IRA. I couldn’t find anything when I googled it.
Apparently there’s no such thing as a Roth SEP-IRA either, which is annoying.
IxnayBob explained it. The after-tax 401k accounts are an option at our former employer. The $ in ours came from exceeding the max allowable in our pre-tax contributions + catch up.
Way back when, I had finance colleagues who put everything in post-tax not because of their tax bracket at the time, but because they assumed they would be withdrawing it before retirement to pay for ordinary living expenses. Blew my mind, but it was their life.
@zeebamom , that’s a common tactic for those planning early (I mean, REALLY early) retirement. I don’t get it either, but then again, I enjoyed working and still consider it a sacrifice, albeit a very fulfilling sacrifice, to have stayed at home with the kids. There is a contingent at Bogleheads who seem to think that retirement is the goal of goals; it seems to work for them
NRE, I looked, and I could possibly establish a charity that employs me, and thus have a solo 401k. I’m way too long out of software development to go back, but maybe I could administer a scholarship fund or something like that. Hmmmm, maybe it could be done ethically and legally.
