Benefits of contributing after-tax to 401k?
Benefits of contributing after-tax to 401k?
What are the benefits of contributing to 401k after-tax?
My company does not match beyond 6%
Is the primary advantage that I don't pay taxes on gains of after-tax contributions?
Your combined Pre-Tax and Post-Tax Contributions are matched as
follows:
o $1 for $1 of the first 4% of eligible pay you contribute, plus
o $0.50 on the $1 of the next 2% of eligible pay you contribute.
o This is a total maximum match of 5% of your eligible pay if you
contribute at least 6% of your eligible pay.
My company does not match beyond 6%
Is the primary advantage that I don't pay taxes on gains of after-tax contributions?
Your combined Pre-Tax and Post-Tax Contributions are matched as
follows:
o $1 for $1 of the first 4% of eligible pay you contribute, plus
o $0.50 on the $1 of the next 2% of eligible pay you contribute.
o This is a total maximum match of 5% of your eligible pay if you
contribute at least 6% of your eligible pay.
Re: Benefits of contributing after-tax to 401k?
Are you asking about contributions to
- a Roth 401k account, or
- an after-tax non-Roth 401k account?
- a Roth 401k account, or
- an after-tax non-Roth 401k account?
Re: Benefits of contributing after-tax to 401k?
after tax non-Roth account
My company allows me to contribute to:
pre-tax
roth IRA
after-tax
I believe now that my company matches every pay period 5% of up to 6%. So, once I reached 401k IRS limit it makes sense to continue with after tax to continue to get match - I think
But what is the benefit for after-tax beyond employer match?
My company allows me to contribute to:
pre-tax
roth IRA
after-tax
I believe now that my company matches every pay period 5% of up to 6%. So, once I reached 401k IRS limit it makes sense to continue with after tax to continue to get match - I think
But what is the benefit for after-tax beyond employer match?
Re: Benefits of contributing after-tax to 401k?
Unless you can convert the money to a Roth account, you are making the gains be taxed at ordinary income tax rates on withdrawal. OTOH, if you have invested the money instead in a tax-efficient taxable account, then the gains would be taxed at the more favorable long-term capital gains tax rate. Plus the gains would get a stepped up basis on your death and you could tax-loss harvest while you were still alive.
Re: Benefits of contributing after-tax to 401k?
You need to validate your plan allows either - or both - "in plan" conversions or "rollover" to Roth. While not guaranteed, that's the primary purpose of after-tax contributions.
In other words, you likely have access to a rather rare Mega Backdoor Roth. https://www.bogleheads.org/wiki/Mega-backdoor_Roth
The primary benefit of which is - as the name implies - being able to mega size your contributions to a Roth account. Instead of being limited to only $6k of Roth a year, you might be able to save maybe $20k/year more into a Roth. The actual amount is $61k [2022 cap] - $20.5k [pre-tax or Roth individual limit] - employer match $$$.
Put more simply, if you currently save say $20k/year into a taxable account, you'll likely be better off doing so into the "Mega Backdoor Roth" (aka your after-tax account). In both cases, the investment $$ is "after-tax". But in the Mega Backdoor Roth (aka after-tax) scenario, all growth and withdrawals will be tax free (provided you meet the 5 year/age requirements to withdraw).
But the key to this working is being able to convert/rollover those after-tax funds into the "Mega Backdoor Roth." Plans differ here... Some can do this automatically if elected, some allow either "in plan" conversions and/ir roll over to a separate Roth IRA, some limit the # of times a year you can do this, some charge fees to convert. You need to figure out how your plan works, best source will be your plan documents or contacting your plan administrator.
In other words, you likely have access to a rather rare Mega Backdoor Roth. https://www.bogleheads.org/wiki/Mega-backdoor_Roth
The primary benefit of which is - as the name implies - being able to mega size your contributions to a Roth account. Instead of being limited to only $6k of Roth a year, you might be able to save maybe $20k/year more into a Roth. The actual amount is $61k [2022 cap] - $20.5k [pre-tax or Roth individual limit] - employer match $$$.
Put more simply, if you currently save say $20k/year into a taxable account, you'll likely be better off doing so into the "Mega Backdoor Roth" (aka your after-tax account). In both cases, the investment $$ is "after-tax". But in the Mega Backdoor Roth (aka after-tax) scenario, all growth and withdrawals will be tax free (provided you meet the 5 year/age requirements to withdraw).
But the key to this working is being able to convert/rollover those after-tax funds into the "Mega Backdoor Roth." Plans differ here... Some can do this automatically if elected, some allow either "in plan" conversions and/ir roll over to a separate Roth IRA, some limit the # of times a year you can do this, some charge fees to convert. You need to figure out how your plan works, best source will be your plan documents or contacting your plan administrator.
- whodidntante
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Re: Benefits of contributing after-tax to 401k?
The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
Re: Benefits of contributing after-tax to 401k?
what are some common HCE limitations for after-tax contributions?whodidntante wrote: ↑Sat Sep 24, 2022 4:43 pm The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
Re: Benefits of contributing after-tax to 401k?
I found this in my plan doc. Not sure if this provides me with clarity on abilitySnowBog wrote: ↑Sat Sep 24, 2022 4:36 pm You need to validate your plan allows either - or both - "in plan" conversions or "rollover" to Roth. While not guaranteed, that's the primary purpose of after-tax contributions.
In other words, you likely have access to a rather rare Mega Backdoor Roth. https://www.bogleheads.org/wiki/Mega-backdoor_Roth
The primary benefit of which is - as the name implies - being able to mega size your contributions to a Roth account. Instead of being limited to only $6k of Roth a year, you might be able to save maybe $20k/year more into a Roth. The actual amount is $61k [2022 cap] - $20.5k [pre-tax or Roth individual limit] - employer match $$$.
Put more simply, if you currently save say $20k/year into a taxable account, you'll likely be better off doing so into the "Mega Backdoor Roth" (aka your after-tax account). In both cases, the investment $$ is "after-tax". But in the Mega Backdoor Roth (aka after-tax) scenario, all growth and withdrawals will be tax free (provided you meet the 5 year/age requirements to withdraw).
But the key to this working is being able to convert/rollover those after-tax funds into the "Mega Backdoor Roth." Plans differ here... Some can do this automatically if elected, some allow either "in plan" conversions and/ir roll over to a separate Roth IRA, some limit the # of times a year you can do this, some charge fees to convert. You need to figure out how your plan works, best source will be your plan documents or contacting your plan administrator.
Roll Over to an Eligible Retirement Plan or an IRA. Instead of paying current taxes, you
(or your Beneficiary) may elect to establish a “rollover” IRA and to contribute all or part of the
lump-sum or partial distribution directly to the IRA. Alternatively, you (or your spousal
Beneficiary) may be eligible to roll over the lump-sum or partial distribution to the retirement
plan of another employer. Because the rules governing rollovers are complex, you (or your
Beneficiary) should consult a tax advisor about the availability, advantages and
disadvantages of this option.
If a lump-sum or partial distribution is paid to you, you may still roll the distribution over to an
IRA or another retirement plan that accepts rollovers within 60 days of receipt of the
distribution. Because taxable amounts distributed to you are automatically subject to
mandatory 20% federal income tax withholding, if you make a rollover of this type, you can
replace the 20% withheld with personal funds until the withheld amounts can be recovered
through the income tax filing system. You are required to pay ordinary income tax and
possibly a 10% penalty on any part of the taxable distribution you do not roll over. Hardship
withdrawals and any age 70½ minimum required distributions are not eligible for rollover.
Rollovers to Roth IRAs may also be available.
The tax alternatives for lump-sum and partial distributions are complex and may yield
significantly different tax liability. You should consult your tax advisor prior to selecting one
of these alternatives.
- whodidntante
- Posts: 13114
- Joined: Thu Jan 21, 2016 10:11 pm
- Location: outside the echo chamber
Re: Benefits of contributing after-tax to 401k?
Basically, expect most of your contributions to be returned.calimero wrote: ↑Sat Sep 24, 2022 7:05 pmwhat are some common HCE limitations for after-tax contributions?whodidntante wrote: ↑Sat Sep 24, 2022 4:43 pm The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
viewtopic.php?p=6302474
Re: Benefits of contributing after-tax to 401k?
I don't think this is what you are looking for... This seems more about account rollovers.calimero wrote: ↑Sat Sep 24, 2022 7:07 pmI found this in my plan doc. Not sure if this provides me with clarity on ability
Roll Over to an Eligible Retirement Plan or an IRA. Instead of paying current taxes, you
(or your Beneficiary) may elect to establish a “rollover” IRA and to contribute all or part of the
lump-sum or partial distribution directly to the IRA. Alternatively, you (or your spousal
Beneficiary) may be eligible to roll over the lump-sum or partial distribution to the retirement
plan of another employer. Because the rules governing rollovers are complex, you (or your
Beneficiary) should consult a tax advisor about the availability, advantages and
disadvantages of this option.
If a lump-sum or partial distribution is paid to you, you may still roll the distribution over to an
IRA or another retirement plan that accepts rollovers within 60 days of receipt of the
distribution. Because taxable amounts distributed to you are automatically subject to
mandatory 20% federal income tax withholding, if you make a rollover of this type, you can
replace the 20% withheld with personal funds until the withheld amounts can be recovered
through the income tax filing system. You are required to pay ordinary income tax and
possibly a 10% penalty on any part of the taxable distribution you do not roll over. Hardship
withdrawals and any age 70½ minimum required distributions are not eligible for rollover.
Rollovers to Roth IRAs may also be available.
The tax alternatives for lump-sum and partial distributions are complex and may yield
significantly different tax liability. You should consult your tax advisor prior to selecting one
of these alternatives.
- anon_investor
- Posts: 15122
- Joined: Mon Jun 03, 2019 1:43 pm
Re: Benefits of contributing after-tax to 401k?
Not always true, depends on the other plan participants. I am classified as a HCE, yet I have been able to max out after-tax contributions (hit 401k total max limit) annually for years now, without returned funds.whodidntante wrote: ↑Sat Sep 24, 2022 7:08 pmBasically, expect most of your contributions to be returned.calimero wrote: ↑Sat Sep 24, 2022 7:05 pmwhat are some common HCE limitations for after-tax contributions?whodidntante wrote: ↑Sat Sep 24, 2022 4:43 pm The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
viewtopic.php?p=6302474
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- whodidntante
- Posts: 13114
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Re: Benefits of contributing after-tax to 401k?
Weird.anon_investor wrote: ↑Sat Sep 24, 2022 7:28 pmNot always true, depends on the other plan participants. I am classified as a HCE, yet I have been able to max out after-tax contributions (hit 401k total max limit) annually for years now, without returned funds.whodidntante wrote: ↑Sat Sep 24, 2022 7:08 pmBasically, expect most of your contributions to be returned.calimero wrote: ↑Sat Sep 24, 2022 7:05 pmwhat are some common HCE limitations for after-tax contributions?whodidntante wrote: ↑Sat Sep 24, 2022 4:43 pm The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
viewtopic.php?p=6302474
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Re: Benefits of contributing after-tax to 401k?
This part wasn't answered yet: you don't want to contribute after-tax until you've maxed out the pre-tax and/or Roth (402g) limit of 20,500 combined. In a straight comparison, Roth is superior to after-tax, because Qualified Roth earnings are tax free upon distribution, whereas after-tax earnings are always taxable upon distribution, unless you convert to Roth within your 401k or to a Roth IRA. Pre-tax may also be more beneficial for you situation over Roth for the first set of contributions.
On another note, employers tend to match only pre-tax and Roth contributions, and not after-tax.
As noted, it's possible HCE status restricts your ability to contribute after-tax, either on either a preemptive basis where they limit the biweekly amount, or on a post hoc basis where they will audit the plan and send you an excess distribution check the following year. Barring that event happening, yes after-tax allows you to "super-fund" your Roth space. By converting the after-tax to Roth you escape the eventual taxes on after-tax earnings because those monies are now Roth, therefore tax free.
On another note, employers tend to match only pre-tax and Roth contributions, and not after-tax.
As noted, it's possible HCE status restricts your ability to contribute after-tax, either on either a preemptive basis where they limit the biweekly amount, or on a post hoc basis where they will audit the plan and send you an excess distribution check the following year. Barring that event happening, yes after-tax allows you to "super-fund" your Roth space. By converting the after-tax to Roth you escape the eventual taxes on after-tax earnings because those monies are now Roth, therefore tax free.
- anon_investor
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Re: Benefits of contributing after-tax to 401k?
It probably helps that I work for a megacorp where there are a lot of employees who are HCE.whodidntante wrote: ↑Sat Sep 24, 2022 7:47 pmWeird.anon_investor wrote: ↑Sat Sep 24, 2022 7:28 pmNot always true, depends on the other plan participants. I am classified as a HCE, yet I have been able to max out after-tax contributions (hit 401k total max limit) annually for years now, without returned funds.whodidntante wrote: ↑Sat Sep 24, 2022 7:08 pmBasically, expect most of your contributions to be returned.calimero wrote: ↑Sat Sep 24, 2022 7:05 pmwhat are some common HCE limitations for after-tax contributions?whodidntante wrote: ↑Sat Sep 24, 2022 4:43 pm The primary advantage of after-tax contributions comes when you find a path for Roth conversion, even within the 401k, or by doing a mega backdoor Roth IRA. Note, however, that your ability to make after-tax contributions is likely to be severely limited if you are a highly compensated employee. A safe harbor plan is no help in this regard.
viewtopic.php?p=6302474
- whodidntante
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Re: Benefits of contributing after-tax to 401k?
Are y'all taking applications?anon_investor wrote: ↑Sat Sep 24, 2022 8:16 pmIt probably helps that I work for a megacorp where there are a lot of employees who are HCE.whodidntante wrote: ↑Sat Sep 24, 2022 7:47 pmWeird.anon_investor wrote: ↑Sat Sep 24, 2022 7:28 pmNot always true, depends on the other plan participants. I am classified as a HCE, yet I have been able to max out after-tax contributions (hit 401k total max limit) annually for years now, without returned funds.whodidntante wrote: ↑Sat Sep 24, 2022 7:08 pmBasically, expect most of your contributions to be returned.
viewtopic.php?p=6302474
- anon_investor
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Re: Benefits of contributing after-tax to 401k?
Haha, with the way everyone is talking about recessions, I bet we do layoffs... though its a big enough company they seems to always do layoffs every year regardless of the economic environment.whodidntante wrote: ↑Sat Sep 24, 2022 8:24 pmAre y'all taking applications?anon_investor wrote: ↑Sat Sep 24, 2022 8:16 pmIt probably helps that I work for a megacorp where there are a lot of employees who are HCE.whodidntante wrote: ↑Sat Sep 24, 2022 7:47 pmWeird.anon_investor wrote: ↑Sat Sep 24, 2022 7:28 pmNot always true, depends on the other plan participants. I am classified as a HCE, yet I have been able to max out after-tax contributions (hit 401k total max limit) annually for years now, without returned funds.whodidntante wrote: ↑Sat Sep 24, 2022 7:08 pm
Basically, expect most of your contributions to be returned.
viewtopic.php?p=6302474
I think the trick is someone high up changed the 401k plan a few years back to allow for the after-tax contributions + in-plan Roth conversions; and then there was a lot of internal promotion of this "new benefit" at the time. So I am sure I am not the only one trying to max out after-tax contributions. I don't know how it works with company match and automatic company contributions, but the company is pretty generous with both.
Re: Benefits of contributing after-tax to 401k?
I don't think anyone explicitly mentioned it, but you should also examine the option of maxing out the pre-tax contributions first, if your plan offers in-plan conversions of after-tax funds. Then you can explore this option up to the total limit and see how much sense it makes to your overall long term portfolio.
I've been doing this, but it is a recent thing because my mega-corp only recently made this available (I missed this the first year, but the Fidelity person noted this change). I believe the limits can come about with regard to a couple of non-discrimination tests made on HCE, thus are company specific. I haven't seen the trigger, although I've seen employee stock participation get limited for HCEs this year.
I've been doing this, but it is a recent thing because my mega-corp only recently made this available (I missed this the first year, but the Fidelity person noted this change). I believe the limits can come about with regard to a couple of non-discrimination tests made on HCE, thus are company specific. I haven't seen the trigger, although I've seen employee stock participation get limited for HCEs this year.
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Re: Benefits of contributing after-tax to 401k?
Is the HCE (Highly Compensated Employee) rule something the employer manages, or something an employee needs to be aware of?
Despite my compensation being well over the HCE limit, I've only worked for one company where the HCE rule was mentioned and my 401k contributions were limited to to 6%. At my last 4 employers, I've never seen HCE mentioned anywhere and none of them impose any restrictions on the plan. Actually, they always have encouraged staff to max out all the plan space, including after-tax, there is a little tracker showing your progress.
I saw this article:
https://smartasset.com/retirement/401k- ... 4135%2C000.
I guess my question is, do I just keep maxing out 401k until told otherwise by employer? Or is there something I need to be doing here?
Despite my compensation being well over the HCE limit, I've only worked for one company where the HCE rule was mentioned and my 401k contributions were limited to to 6%. At my last 4 employers, I've never seen HCE mentioned anywhere and none of them impose any restrictions on the plan. Actually, they always have encouraged staff to max out all the plan space, including after-tax, there is a little tracker showing your progress.
I saw this article:
https://smartasset.com/retirement/401k- ... 4135%2C000.
I'm not sure how companies address the presumably low average contributions of non-HCE, any ideas? Even if the company staff consist of 99% HCE and 1% non-HCE, it sounds like the averages are computed separately and compared. Are there some other criteria not mentioned in this article that allow companies to avoid placing restrictions on HCE staff?Each year, employers run the 401(k) plans they sponsor through non-discrimination tests. The IRS requires these to make sure plans don’t favor HCEs over the rest of the company.
So to pass the test, average contributions made by HCEs can’t be more than two percentage points higher than average contributions made by non-highly compensated employees. So if the average contribution that non-HCEs make equals 4% of their salaries, the average contribution HCEs make can’t exceed 6% of their salaries.
In addition, total HCE contributions can’t exceed the total contributions of non-HCEs by more than 2%. As you can see, how much you should contribute to your 401(k) depends heavily on how much non-HCEs are contributing and how many are even participating at all.
I guess my question is, do I just keep maxing out 401k until told otherwise by employer? Or is there something I need to be doing here?
My posts are for entertainment purposes only.
Re: Benefits of contributing after-tax to 401k?
Check your 401k plan documents on how the employer defines the highly compensated employee, it's not always just 130k TC, it could be that the employer chooses to include top 20% of employee comp as an additional threshold:Yarlonkol12 wrote: ↑Sun Sep 25, 2022 6:49 am Is the HCE (Highly Compensated Employee) rule something the employer manages, or something an employee needs to be aware of?
Despite my compensation being well over the HCE limit, I've only worked for one company where the HCE rule was mentioned and my 401k contributions were limited to to 6%. At my last 4 employers, I've never seen HCE mentioned anywhere and none of them impose any restrictions on the plan. Actually, they always have encouraged staff to max out all the plan space, including after-tax, there is a little tracker showing your progress.
I saw this article:
https://smartasset.com/retirement/401k- ... 4135%2C000.
I'm not sure how companies address the presumably low average contributions of non-HCE, any ideas? Even if the company staff consist of 99% HCE and 1% non-HCE, it sounds like the averages are computed separately and compared. Are there some other criteria not mentioned in this article that allow companies to avoid placing restrictions on HCE staff?Each year, employers run the 401(k) plans they sponsor through non-discrimination tests. The IRS requires these to make sure plans don’t favor HCEs over the rest of the company.
So to pass the test, average contributions made by HCEs can’t be more than two percentage points higher than average contributions made by non-highly compensated employees. So if the average contribution that non-HCEs make equals 4% of their salaries, the average contribution HCEs make can’t exceed 6% of their salaries.
In addition, total HCE contributions can’t exceed the total contributions of non-HCEs by more than 2%. As you can see, how much you should contribute to your 401(k) depends heavily on how much non-HCEs are contributing and how many are even participating at all.
I guess my question is, do I just keep maxing out 401k until told otherwise by employer? Or is there something I need to be doing here?
https://www.irs.gov/retirement-plans/pl ... efinitions
For the preceding year, received compensation from the business of more than $125,000 (if the preceding year is 2019, 130,000 if the preceding year is 2020 or 2021 and $135,000 if the preceding is 2022), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
Re: Benefits of contributing after-tax to 401k?
[/quote]For the preceding year, received compensation from the business of more than $125,000 (if the preceding year is 2019, 130,000 if the preceding year is 2020 or 2021 and $135,000 if the preceding is 2022), and, if the employer so chooses, was in the top 20% of employees when ranked by compensation.
Here is my plan:
You may make multiple types of contributions to the Plan, up to the following
Plan limits and subject to IRS limits:
Up to 35% in Pre-Tax Contributions2
Up to 35% in Post-Tax Contributions3
Up to 75% in additional “Catch-Up” Contributions for those who are age 504
2 Up to the IRC Section 402(g) limit for the applicable year ($18,500 in 2018); Note that certain Highly Compensated Employees
(HCEs) may be limited by the Plan (10% in 2018).
3 Note that certain Highly Compensated Employees (HCEs) may be limited by the Plan (6% in 2018
Of course there is a IRS cap and HCE was defined in 2018 as 120k
So, looks like HCE can do 6% max after tax? Basically allowing to get the full comapny match in my case.
Re: Benefits of contributing after-tax to 401k?
Looks like I need to call. I don't find that language in my document.SnowBog wrote: ↑Sat Sep 24, 2022 7:23 pmI don't think this is what you are looking for... This seems more about account rollovers.calimero wrote: ↑Sat Sep 24, 2022 7:07 pmI found this in my plan doc. Not sure if this provides me with clarity on ability
Roll Over to an Eligible Retirement Plan or an IRA. Instead of paying current taxes, you
(or your Beneficiary) may elect to establish a “rollover” IRA and to contribute all or part of the
lump-sum or partial distribution directly to the IRA. Alternatively, you (or your spousal
Beneficiary) may be eligible to roll over the lump-sum or partial distribution to the retirement
plan of another employer. Because the rules governing rollovers are complex, you (or your
Beneficiary) should consult a tax advisor about the availability, advantages and
disadvantages of this option.
If a lump-sum or partial distribution is paid to you, you may still roll the distribution over to an
IRA or another retirement plan that accepts rollovers within 60 days of receipt of the
distribution. Because taxable amounts distributed to you are automatically subject to
mandatory 20% federal income tax withholding, if you make a rollover of this type, you can
replace the 20% withheld with personal funds until the withheld amounts can be recovered
through the income tax filing system. You are required to pay ordinary income tax and
possibly a 10% penalty on any part of the taxable distribution you do not roll over. Hardship
withdrawals and any age 70½ minimum required distributions are not eligible for rollover.
Rollovers to Roth IRAs may also be available.
The tax alternatives for lump-sum and partial distributions are complex and may yield
significantly different tax liability. You should consult your tax advisor prior to selecting one
of these alternatives.
I don't think this helps either to answer.
Rollover
Contributions
Withdrawals
If you have a balance in your Rollover Contributions account, you may
elect to withdraw all or a portion of it at any time. There is no limit on
the number of withdrawals of this type.
Post-Tax
Contributions
Withdrawals
You may elect to withdraw from your Post-Tax account balance.
For Post-Tax Contributions made January 1, 2018 or later, you can
elect to withdraw up to 50% of your Post-Tax account up to one time
per year. You are subject to tax to the extent that your withdrawal
includes taxable earnings, including a 10% excise tax if you are under
age 59½.
For Post-Tax Contributions made prior to January 1, 2018, you can
elect to withdraw all or part of your unmatched account balance up to
four times per year.
Re: Benefits of contributing after-tax to 401k?
+1
And sadly, don't be surprised if you have to talk with more than one person. After-tax plans aren't as common to begin with, and far fewer people use them (even when they have access) as either they don't understand the benefits of they don't (or can't) save enough to utilize them. So I've found knowledge gaps depending on who you talk to...
Re: Benefits of contributing after-tax to 401k?
Will do. My main question:SnowBog wrote: ↑Sun Sep 25, 2022 1:58 pm+1
And sadly, don't be surprised if you have to talk with more than one person. After-tax plans aren't as common to begin with, and far fewer people use them (even when they have access) as either they don't understand the benefits of they don't (or can't) save enough to utilize them. So I've found knowledge gaps depending on who you talk to...
- Can I do Roth conversions of after-tax contributions, either as an in-plan conversion or as an in-service distribution
If the answer is yes
a. then I have the benefit of match on after tax (after I ma done maxing out pre-tax)
b. I can do Mega backdoor
What if the answer is no to a.)? Can I still do mega-backdoor, but only after I separated or retired? Or not at all?
Re: Benefits of contributing after-tax to 401k?
If you can make after-tax non-Roth contributions, but can't convert them to Roth until you leave the company, it's much like a Non-deductible traditional IRA but with a higher annual contribution limit.calimero wrote: ↑Sun Sep 25, 2022 3:05 pm Will do. My main question:
- Can I do Roth conversions of after-tax contributions, either as an in-plan conversion or as an in-service distribution
...
What if the answer is no to a.)? Can I still do mega-backdoor, but only after I separated or retired? Or not at all?
See that wiki article for ways to evaluate whether this might be favorable for you or not.
Re: Benefits of contributing after-tax to 401k?
I called my 401k (which is serviced by Fidelity). They told me that I can do a "in-plan" Roth conversion annually.FiveK wrote: ↑Sun Sep 25, 2022 3:22 pmIf you can make after-tax non-Roth contributions, but can't convert them to Roth until you leave the company, it's much like a Non-deductible traditional IRA but with a higher annual contribution limit.calimero wrote: ↑Sun Sep 25, 2022 3:05 pm Will do. My main question:
- Can I do Roth conversions of after-tax contributions, either as an in-plan conversion or as an in-service distribution
...
What if the answer is no to a.)? Can I still do mega-backdoor, but only after I separated or retired? Or not at all?
See that wiki article for ways to evaluate whether this might be favorable for you or not.
They told me that this would also apply to a 401k that I roll over from previous employer.
Based on this it seems a good idea to max out after-tax so that I will not pay any taxes in the future on gain etc.
Re: Benefits of contributing after-tax to 401k?
Excellent news!!!calimero wrote: ↑Mon Sep 26, 2022 8:26 amI called my 401k (which is serviced by Fidelity). They told me that I can do a "in-plan" Roth conversion annually.FiveK wrote: ↑Sun Sep 25, 2022 3:22 pmIf you can make after-tax non-Roth contributions, but can't convert them to Roth until you leave the company, it's much like a Non-deductible traditional IRA but with a higher annual contribution limit.calimero wrote: ↑Sun Sep 25, 2022 3:05 pm Will do. My main question:
- Can I do Roth conversions of after-tax contributions, either as an in-plan conversion or as an in-service distribution
...
What if the answer is no to a.)? Can I still do mega-backdoor, but only after I separated or retired? Or not at all?
See that wiki article for ways to evaluate whether this might be favorable for you or not.
They told me that this would also apply to a 401k that I roll over from previous employer.
Based on this it seems a good idea to max out after-tax so that I will not pay any taxes in the future on gain etc.
You may want to clarify if "would also apply" means "must apply" to the prior 401k rollover.
Again, all plans are different - so how yours works may be unique to your plan... But my plan (also at Fidelity) allows me the "in-plan" conversion of both my after-tax as well as prior employer 401k rollovers, the latter being "optional." In talking with Fidelity reps over the years, one mentioned (at least in my plan) they can do a "source specific" conversion - meaning they can exclusively target the "after-tax" funds and leave the funds rolled over from the prior 401k alone.
And an emphasis on maybe needing to talk with more than one rep... I've had access to an after-tax account for > 10 years, but have only realized "why" and used it for maybe 5 or so years... But I've done plenty of conversions in that time (I'm not limited to 1x a year). The first conversion this year, the rep was trying to tell me that they had to convert both my after-tax and my prior 401k rollover funds. I politely declined, and shared I'd done conversions multiple times - and never had to touch my prior 401k rollover funds. They had to do some more digging, but eventually confirmed that they could target just my after-tax funds.
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Re: Benefits of contributing after-tax to 401k?
In addition to the wiki pages that others have pointed to, I’d recommend considering things like mega-back door in the context of Prioritizing Investments
Have you fully taken advantage of the higher priorities already?
Have you fully taken advantage of the higher priorities already?
Re: Benefits of contributing after-tax to 401k?
thanks for sharing. pretty much, except HSA. I have currently a PPO, so I ma not sure whether it is in an option.Bogletechs wrote: ↑Mon Sep 26, 2022 8:54 am In addition to the wiki pages that others have pointed to, I’d recommend considering things like mega-back door in the context of Prioritizing Investments
Have you fully taken advantage of the higher priorities already?
I did FSA in the past. But since I was lucky not to have many expenses and more sporadic the plan was kind of a hassle compared to benefit.
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Re: Benefits of contributing after-tax to 401k?
Seems like PPOs can be eligible for HSA ... if they are a High Deductible Health Plan. So you may have an option there?
https://help.ihealthagents.com/hc/en-us ... -PPO-Plan-
https://help.ihealthagents.com/hc/en-us ... -PPO-Plan-