Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

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Snowfire
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Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

Hello Bogleheads,

I am creating this as a separate post and linking my previous post here because for one, it focussed on my current allocations vs desired allocations for my portfolio and two, I wanted to keep this to be specific to HSA rollover and Mega Backdoor Roth 401k.

HSA -
I had my previous HSA with HealthEquity(HE) while I was employed with my old employer whereas the new employer has their HSA with ConnectYourCare(CYC). The old HSA currently has around ~$6k and is invested into VIIIX fund. I want to know what would be the ideal way to rollover the funds from that account to the new one at CYC given that their list of funds currently being offered is this. I am looking for minimizing taxes of course along with the fund to maximize growth - since I am currently 29 years old and healthy (touchwood), plus don't have any recurring/known allergies/illnesses, etc. AND I focus very much on keeping my health in the best possible shape, I am also assuming that the funds I put in HSA won't be needed for any use. Of course, life can throw unexpected twists and turns and so I have put 12 months of my current expenses in bank's savings account (~$28k) + 6 months of expenses in a high-yield savings a/c at Wealthfront (~$10k).


MBR -
As mentioned in my previous post, I have my 401k currently set up with Fidelity in which I have around 60k$ invested in Roth 401k in FXAIX and $100k invested in FXNAX in pre-tax 401k. I have also signed up to contribute 8% of paycheck contributions and would get 6% match (up-to $5k annually) from my employer. At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k and for that, I would like to know BG community's suggestions for what would be the ideal strategy for fund selection. The list of funds with my new employer is the same as what I had shared in the other post, but sharing again here for reference.

Thank you so much for your time and patience! This community has been truly amazing in helping me learn, grow and take the correct steps :happy
Last edited by Snowfire on Sun Jun 13, 2021 12:18 am, edited 1 time in total.
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anon_investor
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by anon_investor »

Snowfire wrote: Sat Jun 12, 2021 8:21 pm Hello Bogleheads,

I am creating this as a separate post and linking my previous post here because for one, it focussed on my current allocations vs desired allocations for my portfolio and two, I wanted to keep this to be specific to HSA rollover and Mega Backdoor Roth 401k.

HSA -
I had my previous HSA with HealthEquity(HE) while I was employed with my old employer whereas the new employer has their HSA with ConnectYourCare(CYC). The old HSA currently has around ~$6k and is invested into VIIIX fund. I want to know what would be the ideal way to rollover the funds from that account to the new one at CYC given that their list of funds currently being offered is this. I am looking for minimizing taxes of course along with the fund to maximize growth - since I am currently 29 years old and healthy (touchwood), plus don't have any recurring/known allergies/illnesses, etc. AND I focus very much on keeping my health in the best possible shape, I am also assuming that the funds I put in HSA won't be needed for any use. Of course, life can thrown unexpected twists and turns and so I have put 12 months of my current expenses in bank's savings account (~$28k) + 6 months of expenses in a high-yield savings a/c at Wealthfront (~$10k).


MBR -
As mentioned in my previous post, I have my 401k currently set up with Fidelity in which I have around 60k$ invested in Roth 401k in FXAIX and $100k invested in FXNAX in pre-tax 401k. I have also signed up to contribute 8% of paycheck contributions and would get 6% match (up-to $5k annually) from my employer. At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k and for that, I would like to know BG community's suggestions for what would be the ideal strategy for fund selection. The list of funds with my new employer is the same as what I had shared in the other post, but sharing again here for reference.

Thank you so much for your time and patience! This community has been truly amazing in helping me learn, grow and take the correct steps :happy
Rollover the HSA to Fidelity instead. The best free HSA around.
Topic Author
Snowfire
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Joined: Sat Oct 07, 2017 9:18 pm

Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

anon_investor wrote: Sat Jun 12, 2021 8:29 pm
Snowfire wrote: Sat Jun 12, 2021 8:21 pm Hello Bogleheads,

I am creating this as a separate post and linking my previous post here because for one, it focussed on my current allocations vs desired allocations for my portfolio and two, I wanted to keep this to be specific to HSA rollover and Mega Backdoor Roth 401k.

HSA -
I had my previous HSA with HealthEquity(HE) while I was employed with my old employer whereas the new employer has their HSA with ConnectYourCare(CYC). The old HSA currently has around ~$6k and is invested into VIIIX fund. I want to know what would be the ideal way to rollover the funds from that account to the new one at CYC given that their list of funds currently being offered is this. I am looking for minimizing taxes of course along with the fund to maximize growth - since I am currently 29 years old and healthy (touchwood), plus don't have any recurring/known allergies/illnesses, etc. AND I focus very much on keeping my health in the best possible shape, I am also assuming that the funds I put in HSA won't be needed for any use. Of course, life can thrown unexpected twists and turns and so I have put 12 months of my current expenses in bank's savings account (~$28k) + 6 months of expenses in a high-yield savings a/c at Wealthfront (~$10k).


MBR -
As mentioned in my previous post, I have my 401k currently set up with Fidelity in which I have around 60k$ invested in Roth 401k in FXAIX and $100k invested in FXNAX in pre-tax 401k. I have also signed up to contribute 8% of paycheck contributions and would get 6% match (up-to $5k annually) from my employer. At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k and for that, I would like to know BG community's suggestions for what would be the ideal strategy for fund selection. The list of funds with my new employer is the same as what I had shared in the other post, but sharing again here for reference.

Thank you so much for your time and patience! This community has been truly amazing in helping me learn, grow and take the correct steps :happy
Rollover the HSA to Fidelity instead. The best free HSA around.
I did read this suggestion on one other post while browsing this forum and my immediate questions that I have been trying to answer are -
  1. How does that rollover work? Do I just call Fidelity and let them know? Or should I call up HealthEquity instead? But then to tell HE to move funds out, I need to first have an HSA account with Fidelity, right? If yes, that brings me to my next question -
  2. Isn't it my employer who decided to be with CYC for HSA instead of Fidelity? In such a case, how can I set up automatic payments from my paycheck to go to Fidelity's HSA (assuming I create one with them) instead of going into the CYC account? If I understand correctly, that's where they would go once I set it up as things stand now.
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anon_investor
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by anon_investor »

Snowfire wrote: Sat Jun 12, 2021 8:33 pm
anon_investor wrote: Sat Jun 12, 2021 8:29 pm
Snowfire wrote: Sat Jun 12, 2021 8:21 pm Hello Bogleheads,

I am creating this as a separate post and linking my previous post here because for one, it focussed on my current allocations vs desired allocations for my portfolio and two, I wanted to keep this to be specific to HSA rollover and Mega Backdoor Roth 401k.

HSA -
I had my previous HSA with HealthEquity(HE) while I was employed with my old employer whereas the new employer has their HSA with ConnectYourCare(CYC). The old HSA currently has around ~$6k and is invested into VIIIX fund. I want to know what would be the ideal way to rollover the funds from that account to the new one at CYC given that their list of funds currently being offered is this. I am looking for minimizing taxes of course along with the fund to maximize growth - since I am currently 29 years old and healthy (touchwood), plus don't have any recurring/known allergies/illnesses, etc. AND I focus very much on keeping my health in the best possible shape, I am also assuming that the funds I put in HSA won't be needed for any use. Of course, life can thrown unexpected twists and turns and so I have put 12 months of my current expenses in bank's savings account (~$28k) + 6 months of expenses in a high-yield savings a/c at Wealthfront (~$10k).


MBR -
As mentioned in my previous post, I have my 401k currently set up with Fidelity in which I have around 60k$ invested in Roth 401k in FXAIX and $100k invested in FXNAX in pre-tax 401k. I have also signed up to contribute 8% of paycheck contributions and would get 6% match (up-to $5k annually) from my employer. At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k and for that, I would like to know BG community's suggestions for what would be the ideal strategy for fund selection. The list of funds with my new employer is the same as what I had shared in the other post, but sharing again here for reference.

Thank you so much for your time and patience! This community has been truly amazing in helping me learn, grow and take the correct steps :happy
Rollover the HSA to Fidelity instead. The best free HSA around.
I did read this suggestion on one other post while browsing this forum and my immediate questions that I have been trying to answer are -
  1. How does that rollover work? Do I just call Fidelity and let them know? Or should I call up HealthEquity instead? But then to tell HE to move funds out, I need to first have an HSA account with Fidelity, right? If yes, that brings me to my next question -
  2. Isn't it my employer who decided to be with CYC for HSA instead of Fidelity? In such a case, how can I set up automatic payments from my paycheck to go to Fidelity's HSA (assuming I create one with them) instead of going into the CYC account? If I understand correctly, that's where they would go once I set it up as things stand now.
You would end up with 2 HSAs, 1 at Fidelity and your employer's HSA at CYC. You would basically have your employer deposit the payroll deduction to CYC, and periodically do rollovers to Fidelity.

People usually, have Fidelity pull the money. So Fidelity would pull from HealthEquity, etc. There is also the option of an indirect rollover.

There are a few threads about Fidelity HSAs, like this one:
viewtopic.php?f=10&t=263661&start=1100
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celia
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by celia »

I was never eligible for a HSA or Mega Backdoor Roth, so I might not be the best person to comment on this. So if my comments strike someone else as flawed or wrong, I hope they will correct me. I am not commenting directly on what the investment fund should be as I am focusing instead on helping the OP understand "the rules" to prevent future surprises.
Snowfire wrote: Sat Jun 12, 2021 8:21 pm HSA -
I had my previous HSA with HealthEquity(HE) while I was employed with my old employer whereas the new employer has their HSA with ConnectYourCare(CYC). The old HSA currently has around ~$6k and is invested into VIIIX fund. I want to know what would be the ideal way to rollover the funds from that account to the new one at CYC given that their list of funds currently being offered is this. I am looking for minimizing taxes of course along with the fund to maximize growth...
From my time on Bogleheads, I've seen some people think of HSAs like another Roth IRA, and thus invest in stock funds, to maximize future tax-free growth (depending on how your state treats HSAs). They intentionally never make any claims since they let the accounts grow until retirement, and then still even let them continue growing. Along the way, they label and scan their medical receipts so they can seek reimbursement later on, as long as the medical services were received during the time they were eligible for an HSA. So that $700 dental crown you get today could be reimbursed, but if you pay for it out of pocket, that $700 could eventually grow to $3500 or $7000, so you will have money not only for the dental crown reimbursement, but other medical services too. And if there is still money in the HSA when you die, the past medical receipts could be submitted by your executor for reimbursement.

The thing I don't know about involves the reimbursement process. If you combine HSAs from two different employers, how will they know the time span you were "eligible" to contribute from other employers? They need to know this in order to evaluate your submitted receipts. Can anyone else answer this?
MBR -
As mentioned in my previous post, I have my 401k currently set up with Fidelity in which I have around 60k$ invested in Roth 401k in FXAIX and $100k invested in FXNAX in pre-tax 401k. I have also signed up to contribute 8% of paycheck contributions and would get 6% match (up-to $5k annually) from my employer. At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k and for that, I would like to know BG community's suggestions for what would be the ideal strategy for fund selection. The list of funds with my new employer is the same as what I had shared in the other post, but sharing again here for reference.
I think the Mega Backdoor Roth is of the most benefit if the pre-tax 401K and Roth 401K are in separate accounts (such as if you had two employer plans), instead of being a percentage of a joint account, AND if you can do in-service roll-overs of the Roth amount.

For example, suppose you contribute $500 every month to the tax-deferred 401K and invest it in bonds while also contributing $500 to the Roth 401K in stocks, which you expect to grow faster. If the pre-tax 401K and Roth 401K are held in the same account, they will share in each other's growth. You will have invested $1,000 each month (or $12,000 for the year). You will probably expect the bonds that are growing at 3% each year would be expected to be worth about $6,200 and the Roth that is growing at 10% to be worth about $6,600. If you were to roll the Roth portion to your Roth IRA, you would expect $6,600 to be transferred. But what the custodian (and IRS) is probably seeing is that your 401K is 50% tax-deferred and 50% Roth and half of the total value ($12,800 / 2 = $6,400) would be moved to your Roth IRA.

But, if your Roth 401K allows in-service rollovers (transfers out while still employed), you could mitigate this by doing yearly or semi-annually rollovers to your Roth IRA. Some people move the money each month, but that may require a call to the administrator every month.

Personally, if I didn't have access to yearly in-service rollovers, I would just stick with one kind, because I would be losing more expected Roth growth each year as time goes on. Or if my spouse and I each had access to a 401K, one of us could do pre-tax and one could do Roth 401K.

A further option, some plans give, is to also allow "After-Tax" contributions. These are Roth contributions that can be immediately rolled over to a Roth IRA, ensuring that the growth that you expect will be "after-tax" (aka tax-free).

See the Mega-backdoor Roth and After-tax 401(k) wiki pages.
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by grabiner »

celia wrote: Sun Jun 13, 2021 8:01 pm The thing I don't know about involves the reimbursement process. If you combine HSAs from two different employers, how will they know the time span you were "eligible" to contribute from other employers? They need to know this in order to evaluate your submitted receipts. Can anyone else answer this?
An HSA is not associated with an employer. Your employer may contribute to an HSA with a particular provider if you have a qualifying HDHP, but there is no later distinction between this HSA money and other HSA money. You can roll your employer's HSA into another HSA if you prefer another provider's investment options.

If you and your employer combine to contribute more to an HSA than you were eligible to contribute, this will show up on your tax form, and you will need to remove your excess contributions before the tax-filing deadline or pay a penalty. IRAs work the same way; two different providers can each allow you to contribute up to the IRS limit, but if you do this, you will have an excess contribution which is identified to the IRS on either your form or the forms that the providers send to the IRS. and you have to remove the excess or pay a penalty.

An HSA provider doesn't normally check your receipts. If you need to reimburse yourself for a medical expense, you save the receipt in case of an IRS audit, and certify when you file your tax forms that you are entitled to the tax-free withdrawals you claim.
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celia
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by celia »

grabiner wrote: Sun Jun 13, 2021 10:31 pm An HSA is not associated with an employer. Your employer may contribute to an HSA with a particular provider if you have a qualifying HDHP, but there is no later distinction between this HSA money and other HSA money. You can roll your employer's HSA into another HSA if you prefer another provider's investment options.
Thanks. This makes it look more like an IRA that I was expecting.
okwriter
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by okwriter »

Snowfire wrote: Sat Jun 12, 2021 8:21 pm At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k
The way you phrased this sounds weird to me - I doubt if any employer would actually call it "MegaBackdoor Roth 401k". My suggestion would be to go through the Wiki article referenced above, and in particular, the section "Determining if your plan supports the mega-backdoor Roth".

It sounds like you may be referring to an in-plan Roth conversion, but please verify that it's the same thing described in the article.
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Snowfire
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

Combining all the replies from above, if I understand correctly, the actions item for me are as follows regarding my HSA -
  1. Call Fidelity and complete the procedure to open an HSA with Fidelity.
  2. Tell Fidelity to transfer all my existing HSA money/funds from HealthEquity that I had with my old employer over to this new account I get created.
  3. Tell Fidelity to also set up recurring rollovers of all the amount from CYC of my new employer (say, once every month) over to the same Fidelity HSA account and into the fund that I end up selecting for this same Fidelity HSA
  4. Based on my own reading and understanding of the benefits of HSA, I agree that for as long as I can, I do intend to keep treating my HSA as another Roth IRA (although, being in California, I read that they do tax HSA) and so just select the broad market index Fund like S&P 500 that Fidelity offers for the HSA investment
Please let me know if there is any mistake in my conclusions.

PS: I have to re-read celia's response above regarding the MBR strategy since I have gotten lost at a point the last 2 times that I read it. :-|
Last edited by Snowfire on Tue Jun 15, 2021 10:46 pm, edited 1 time in total.
Topic Author
Snowfire
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

okwriter wrote: Mon Jun 14, 2021 3:28 am
Snowfire wrote: Sat Jun 12, 2021 8:21 pm At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k
The way you phrased this sounds weird to me - I doubt if any employer would actually call it "MegaBackdoor Roth 401k". My suggestion would be to go through the Wiki article referenced above, and in particular, the section "Determining if your plan supports the mega-backdoor Roth".

It sounds like you may be referring to an in-plan Roth conversion, but please verify that it's the same thing described in the article.
I went over the 401k plan document and for the Roth conversion, they do provide Roth In-Plan conversion and not Roth In-Service conversion.
This is the only section about Roth conversions in the entire Plan Document.

If there is still something that you think I am missing here, can you please let me know? I will try to phrase an actual question or set of questions to ask Fidelity when I call them up (to do the HSA part I mentioned above).
okwriter
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by okwriter »

Snowfire wrote: Tue Jun 15, 2021 10:45 pm
okwriter wrote: Mon Jun 14, 2021 3:28 am
Snowfire wrote: Sat Jun 12, 2021 8:21 pm At the same time though, they have an option for employees to enroll in the MegaBackdoor Roth 401k
The way you phrased this sounds weird to me - I doubt if any employer would actually call it "MegaBackdoor Roth 401k". My suggestion would be to go through the Wiki article referenced above, and in particular, the section "Determining if your plan supports the mega-backdoor Roth".

It sounds like you may be referring to an in-plan Roth conversion, but please verify that it's the same thing described in the article.
I went over the 401k plan document and for the Roth conversion, they do provide Roth In-Plan conversion and not Roth In-Service conversion.
This is the only section about Roth conversions in the entire Plan Document.

If there is still something that you think I am missing here, can you please let me know? I will try to phrase an actual question or set of questions to ask Fidelity when I call them up (to do the HSA part I mentioned above).
The image you posted is talking about a conversion from pre-tax to Roth accounts within the 401(k). This isn't of use in the mega-backdoor Roth strategy, which uses an after-tax to Roth conversion.

As shown in this block diagram, a 401(k) can have 3 separate accounts: pre-tax (known as traditional), Roth, and after-tax. What you need for MBR is:
(1) the ability to make after-tax contributions (not all 401ks offer this feature), and
(2) conversions from after-tax to Roth.

When calling Fidelity, just ask if your plan offers the features (1) and (2). (Don't mention the phrase "mega-backdoor Roth"; it's unlikely they'll understand what it means.)
Contador314
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Contador314 »

Check the fees for doing weekly/monthly direct HSA transfers, they could be steep. The other option is to do a HSA to HSA rollover. I posted this on another HSA thread, hope it helps:


Trustee-to-Trustee(TtT) transfers do not get reported on 1099-SA. They do get reported at all, and you can do as many per year as you want, but mine took about a month to complete (HSABank to Fidelity). Also, nothing related to an HSA is reported on a 1099-R as far as I know. There are different rules for both accounts regarding contribution/distribution eligibility and taxability.

You will know if you did a TtT transfer because you would have had to ask Fidelity to initiate it, and your original hsa provider most likely charged a fee (HSABank charged $25 I think).

I actually didn't know there was a difference between an hsa rollover and a TtT, but I wish I did because a rollover would have been free. You can only do a rollover once every 12 month period. It would work like this:
1. Transfer full account balance to checking account
2. Open a new hsa account at Fidelity
3. Send Fidelity full amount of balance withdrawn from previous HSA
4. When you do your taxes, the amount you distributed will show up on form 1099-SA, report it on line 14a of IRS form 8889
5. Enter the amount you sent to Fidelity on line 14b of IRS form 8889
6. Pay no taxes (of transfer fees) and enjoy the ease of investing with Fidelity as opposed to TD Ameritrade (at least I didn't enjoy having to use it)
I can still log in to my HSABank account to see my old statements. I have a zero balance and they don't charge me monthly (at least I hope so! I think I would have known by now).
Topic Author
Snowfire
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

Update:
  • MBR Roth 401k -
    1. As of today, I have enrolled in the after-tax Roth In-Plan conversion (they don't have in-service contribution) with a contribution amount of 27% to reach the max limit of $58k
    2. I request the BH community to provide suggestions on which fund would be best suited for this after-tax conversion roth 401k
  • HSA -
    1. Fidelity confirmed that I can open an HSA with them free of charge - just need to go online, create a new HSA account with them and submit the form containing the details of the old HSA for the transfer so I can transfer money from an existing HSA to this new Fidelity HSA.
    2. For the current HSA that I have with my new employer, on the one hand my employer confirmed that I cannot set up direct payments to any provider apart from CYC that they have tie up with. On the other hand, for the CYC HSA:
      1. If I want to move money that is in CYC HSA over to Fidelity, they consider this process to be same as "moving money out of HSA" for which I have to send a physical mail with a form requesting the move out. There is no online option.
      2. Also, if I plan to move out the money deposited in my HSA from each paycheck, I would have to send the form in a physical mail each time. There is no online option.
      I found this to be ridiculous, not to mention it being a deliberate way of making the customer give up on doing so :|
      All in all, if I understand correctly, it seems that I am doomed to be stuck with CYC for as long as I would be with my new employer :(
      Please give suggestions if that is not to be the case and if I have other options. :confused
okwriter
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by okwriter »

For MBR, you’ll have 2 investment decisions:

1. The after-tax 401(k) account, i.e. before conversion to Roth - You don’t want this to grow, so the Fidelity money market fund you listed would be perfect. (Ideally you want to convert to Roth quickly, so your money won’t spend too much time in this account.)

2. After conversion to Roth - Treat this as part of your Roth 401(k). I noticed you had another thread on your AA, so just follow the advice there for your Roth 401(k).

On the 58k limit - Note that this limit applies to the total of all contributions to the 401(k) - including the employer match and your pre-tax, Roth and after-tax. See this article for an example.

Your employer may not match after-tax contributions, so you might want to first max out the pre-tax/Roth (19.5k) before doing MBR.
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Snowfire
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

okwriter wrote: Wed Jun 30, 2021 1:48 pm For MBR, you’ll have 2 investment decisions:

1. The after-tax 401(k) account, i.e. before conversion to Roth - You don’t want this to grow, so the Fidelity money market fund you listed would be perfect. (Ideally you want to convert to Roth quickly, so your money won’t spend too much time in this account.)

2. After conversion to Roth - Treat this as part of your Roth 401(k). I noticed you had another thread on your AA, so just follow the advice there for your Roth 401(k).

Yes, as things have been set up now, the conversion is done immediately and the after-tax 401k + roth 401k both end up in the same FXAIX fund.

On the 58k limit - Note that this limit applies to the total of all contributions to the 401(k) - including the employer match and your pre-tax, Roth and after-tax. See this article for an example.
That is correct. The %s that I have set for auto-contribution per paycheck has been calculated taking into account the number of paychecks in the remainder of this year and the total upper limit.

Your employer may not match after-tax contributions, so you might want to first max out the pre-tax/Roth (19.5k) before doing MBR.
Yup, that is how it has been set up right now.
Please provide any suggestions for HSA as that is something that is still unclear to me as of now :confused
okwriter
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by okwriter »

For transfers, it's usually better to initiate it from the receiver (Fidelity). Usually you won't have to deal with the old provider at all - Fidelity should do all the paperwork and pull the money.

Perhaps try this and see how it goes. If it's still a lot of work, you could do it once a year rather than every paycheck.
Contador314
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Contador314 »

I found this to be ridiculous, not to mention it being a deliberate way of making the customer give up on doing so :|
All in all, if I understand correctly, it seems that I am doomed to be stuck with CYC for as long as I would be with my new employer :(
Please give suggestions if that is not to be the case and if I have other options.
That is correct. If most employees knew that, it probably wouldn't be the case, so kudos to you for joining the club.

If you are employed with this employer long-term, your best (and really only), option is to do an "HSA Rollover" once every 12 months. It's best to make the direct payroll contributions as opposed to cash contribution to fidelity, simply because you save 7.65% in payroll FICA taxes. Plus, your employer probably contributes money to you HSA, completely tax free.

If you're wondering why people don't complain about this more, it's almost certainly because only 1% of taxpayers contribute to an HSA annually.

Good luck
Topic Author
Snowfire
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Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

Contador314 wrote: Sat Jul 03, 2021 5:30 pm
If you are employed with this employer long-term, your best (and really only), option is to do an "HSA Rollover" once every 12 months. It's best to make the direct payroll contributions as opposed to cash contribution to fidelity, simply because you save 7.65% in payroll FICA taxes. Plus, your employer probably contributes money to you HSA, completely tax free.
Does this mean each time I request Fidelity to pull money from CYC HSA, they would deduct 7.65% from the amount as tax before depositing in the Fidelity HSA?
terran
Posts: 2966
Joined: Sat Jan 10, 2015 9:50 pm

Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by terran »

Snowfire wrote: Sun Jul 04, 2021 9:51 am
Contador314 wrote: Sat Jul 03, 2021 5:30 pm
If you are employed with this employer long-term, your best (and really only), option is to do an "HSA Rollover" once every 12 months. It's best to make the direct payroll contributions as opposed to cash contribution to fidelity, simply because you save 7.65% in payroll FICA taxes. Plus, your employer probably contributes money to you HSA, completely tax free.
Does this mean each time I request Fidelity to pull money from CYC HSA, they would deduct 7.65% from the amount as tax before depositing in the Fidelity HSA?
No. When you make HSA contributions by payroll deduction your employer usually sets that up in such a way as to exclude the contributions from your income counted for social security and medicare, thus saving you 7.65% (or 1.45% if your income is over the $142,800 social security wage base). This is why it can be beneficial to contribute to an employer sponsored HSA rather than contributing directly to your Fidelity HSA. This isn't recaptured when you rollover/transfer to Fidelity, however.
Topic Author
Snowfire
Posts: 31
Joined: Sat Oct 07, 2017 9:18 pm

Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by Snowfire »

terran wrote: Sun Jul 04, 2021 9:57 am
Snowfire wrote: Sun Jul 04, 2021 9:51 am
Contador314 wrote: Sat Jul 03, 2021 5:30 pm
If you are employed with this employer long-term, your best (and really only), option is to do an "HSA Rollover" once every 12 months. It's best to make the direct payroll contributions as opposed to cash contribution to fidelity, simply because you save 7.65% in payroll FICA taxes. Plus, your employer probably contributes money to you HSA, completely tax free.
Does this mean each time I request Fidelity to pull money from CYC HSA, they would deduct 7.65% from the amount as tax before depositing in the Fidelity HSA?
No. When you make HSA contributions by payroll deduction your employer usually sets that up in such a way as to exclude the contributions from your income counted for social security and medicare, thus saving you 7.65% (or 1.45% if your income is over the $142,800 social security wage base). This is why it can be beneficial to contribute to an employer sponsored HSA rather than contributing directly to your Fidelity HSA. This isn't recaptured when you rollover/transfer to Fidelity, however.
I see. Thanks for that clarification. So then the situation is that I end up NOT saving the 1.45% (yes, my income is > $142k) but get to contribute to a good HSA versus save that 1.45% tax and contribute to a not good HSA :|
Is that conclusion correct?
terran
Posts: 2966
Joined: Sat Jan 10, 2015 9:50 pm

Re: Requesting suggestions for - HSA rollover and MegaBackdoor Roth 401k

Post by terran »

Snowfire wrote: Mon Jul 05, 2021 2:23 pm I see. Thanks for that clarification. So then the situation is that I end up NOT saving the 1.45% (yes, my income is > $142k) but get to contribute to a good HSA versus save that 1.45% tax and contribute to a not good HSA :|
Is that conclusion correct?
Right. Except that you can contribute to the not good HSA to get the 1.45% savings and then rollover to the good HSA. I do this once a year since that's the limit for indirect rollovers and my not good HSA charges a fee for direct transfers. If you make over $200k single/$250k married you'd also save the 0.9% additional medicare tax for a total 2.35% savings.
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