Does Backdoor Roth Inhibit Megabackdoor Roth?

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sf2sv
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Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

Hi Bogleheads,

I have the ability to do a Megabackdoor Roth with my employer's 401K plan. I know this is true as I've done it in years past, however at that time I was under the Roth IRA income limit and could contribute to my Roth IRA directly. Since then my income has increased and I have to do a Backdoor Roth, which I did earlier this year.

My question is are there any considerations/inhibitions completing the Backdoor Roth earlier this year now will have on my ability to do a Megabackdoor Roth?
sailaway
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sailaway »

What is your MBR process? If you are rolling gains to a tIRA, then you have a tIRA balance that can inhibit the backdoor Roth. If you are doing in plan conversions or paying tax on earnings to roll them to Roth, then the two processes are completely independent and should not interfere with each other.
reln
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by reln »

sf2sv wrote: Fri Jul 30, 2021 5:44 pm Hi Bogleheads,

I have the ability to do a Megabackdoor Roth with my employer's 401K plan. I know this is true as I've done it in years past, however at that time I was under the Roth IRA income limit and could contribute to my Roth IRA directly. Since then my income has increased and I have to do a Backdoor Roth, which I did earlier this year.

My question is are there any considerations/inhibitions completing the Backdoor Roth earlier this year now will have on my ability to do a Megabackdoor Roth?
You can do both.
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sf2sv
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

sailaway wrote: Fri Jul 30, 2021 5:48 pm What is your MBR process? If you are rolling gains to a tIRA, then you have a tIRA balance that can inhibit the backdoor Roth. If you are doing in plan conversions or paying tax on earnings to roll them to Roth, then the two processes are completely independent and should not interfere with each other.
We are allowed 4 non-hardship withdrawals a year, so I usually will do the conversion every couple months. I roll everything out of the 401K into a TIRA and then over to the Roth IRA after that--so the gains are relatively limited but they're included. Does that answer your question?
Topic Author
sf2sv
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

reln wrote: Fri Jul 30, 2021 5:54 pm
sf2sv wrote: Fri Jul 30, 2021 5:44 pm Hi Bogleheads,

I have the ability to do a Megabackdoor Roth with my employer's 401K plan. I know this is true as I've done it in years past, however at that time I was under the Roth IRA income limit and could contribute to my Roth IRA directly. Since then my income has increased and I have to do a Backdoor Roth, which I did earlier this year.

My question is are there any considerations/inhibitions completing the Backdoor Roth earlier this year now will have on my ability to do a Megabackdoor Roth?
You can do both.
By "you can do both" you mean no new/unique action is needed with this change right?
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Duckie
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by Duckie »

sf2sv wrote: Fri Jul 30, 2021 5:58 pm We are allowed 4 non-hardship withdrawals a year, so I usually will do the conversion every couple months. I roll everything out of the 401K into a TIRA and then over to the Roth IRA after that
Why detour through the TIRA? Will the 401k not allow a direct transfer to the Roth IRA?
Topic Author
sf2sv
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

Duckie wrote: Fri Jul 30, 2021 6:23 pm
sf2sv wrote: Fri Jul 30, 2021 5:58 pm We are allowed 4 non-hardship withdrawals a year, so I usually will do the conversion every couple months. I roll everything out of the 401K into a TIRA and then over to the Roth IRA after that
Why detour through the TIRA? Will the 401k not allow a direct transfer to the Roth IRA?
Perhaps this is my own ignorance, but everything I've read in the past mentioned transferring to the TIRA before then moving to the Roth IRA. I will investigate just going from the 401K directly to the Roth IRA--that would make it much easier
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retiredjg
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by retiredjg »

sf2sv wrote: Fri Jul 30, 2021 5:58 pm I roll everything out of the 401K into a TIRA and then over to the Roth IRA after that--so the gains are relatively limited but they're included. Does that answer your question?
You should not be rolling anything into tIRA. You should be rolling the entire account directly into Roth IRA.

Why have you been doing this in two steps instead of 1 step? What taxes have you been paying?
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retiredjg
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by retiredjg »

If you roll the entire after-tax account to Roth IRA, the mega-backdoor will not interfere with the ordinary backdoor.

If you roll the after tax account through tIRA into Roth IRA, it could interfere -depending on timing.

However, I'm concerned about what kind of tax you have paid when you did the conversion from tIRA to Roth IRA. I don't know of any mechanism that would prevent you from paying tax twice on the after-tax contributions. Are you absolutely sure that is how you did it?
reln
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by reln »

sf2sv wrote: Fri Jul 30, 2021 5:59 pm
reln wrote: Fri Jul 30, 2021 5:54 pm
sf2sv wrote: Fri Jul 30, 2021 5:44 pm Hi Bogleheads,

I have the ability to do a Megabackdoor Roth with my employer's 401K plan. I know this is true as I've done it in years past, however at that time I was under the Roth IRA income limit and could contribute to my Roth IRA directly. Since then my income has increased and I have to do a Backdoor Roth, which I did earlier this year.

My question is are there any considerations/inhibitions completing the Backdoor Roth earlier this year now will have on my ability to do a Megabackdoor Roth?
You can do both.
By "you can do both" you mean no new/unique action is needed with this change right?
Yup. They are independent.
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riverant
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by riverant »

sf2sv wrote: Fri Jul 30, 2021 6:28 pm
Duckie wrote: Fri Jul 30, 2021 6:23 pm
sf2sv wrote: Fri Jul 30, 2021 5:58 pm We are allowed 4 non-hardship withdrawals a year, so I usually will do the conversion every couple months. I roll everything out of the 401K into a TIRA and then over to the Roth IRA after that
Why detour through the TIRA? Will the 401k not allow a direct transfer to the Roth IRA?
Perhaps this is my own ignorance, but everything I've read in the past mentioned transferring to the TIRA before then moving to the Roth IRA. I will investigate just going from the 401K directly to the Roth IRA--that would make it much easier
A mega back door starts with after tax contributions to a 401k. There is no way to roll those into a tIRA. If your vision of an MBR involves pre tax contributions, something is very wrong.

With a regular back door Roth, your first step is a non deductible contribution to a tIRA, a step for which there is no equivalent in a 401k plan.
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JoMoney
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by JoMoney »

TJat wrote: Sat Jul 31, 2021 8:29 am...
A mega back door starts with after tax contributions to a 401k. There is no way to roll those into a tIRA....
That's not true, it creates complications and additional forms (8606) that you'll have to file to keep track of the after-tax basis in the tIRA, but you can do it. Before the IRS acknowledged and spelled out the process that makes "Megabackdoor Roth" possible, lots of people had after-tax basis that got rolled into a tIRA... and lots of grumbling about being saddled with the form 8606 pretty much forever.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
Topic Author
sf2sv
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

Hi all--I just checked and apologize for the incorrect info I gave. I double checked and I had indeed been going direct to the Roth IRA in prior years' past from the 401K. Confused myself a bit since I just had the TIRA opened this year. Anyway, it sounds like continuing that same process is the way to go without issue. Thank you!
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retiredjg
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by retiredjg »

This is good news. :happy

As long as you send the entire after-tax account to Roth IRA, you will have no problem with your ordinary backdoor process.

If you do a split distribution and send the earnings to tIRA, you could have a problem. Just don't do it.
Topic Author
sf2sv
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Re: Does Backdoor Roth Inhibit Megabackdoor Roth?

Post by sf2sv »

retiredjg wrote: Sat Jul 31, 2021 8:54 am This is good news. :happy

As long as you send the entire after-tax account to Roth IRA, you will have no problem with your ordinary backdoor process.

If you do a split distribution and send the earnings to tIRA, you could have a problem. Just don't do it.
Understood--thank you for the detailed help!
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