[Peg]

For the past couple of years I have been maxing out my 401k and putting in after tax money.

A co-worker told me yesterday that I could call my brokerage firm and ask them how much after tax money I put in to my 401k and then request that they pull that money from my 401k and put it into my Roth.

Is this true? Is this what they call a Back door Roth? I also maxed out my Roth in 2024.

TIA for any help on this!

[Kris]

I’m curious why you’d do after tax 401(k) contributions as opposed to just opening a taxable brokerage? What am I missing.

[Rick]

If this is the mega backdoor Roth, and tiny wording nuances matter so make 120% sure this is what you think you are doing, make sure to consider the taxes.

As you described, you have 401k after tax contribution. When converted to Roth 401k, the gain in the after tax 401k are usually taxable.

This is rarely big deal doing a proactive mega backdoor Roth effort as the days in after tax to have gains are few and usually the funds are in cash anyways so gains are again small.

But I wonder if your after tax money has been there for years and invested in something with gains, as many funds have had gains last few years.

That gain is usually taxable. That may not change your decision but make sure you understand and consider it.

[Christopher]

Before dealing with your brokerage, see if your 401k plan allows “in plan Roth conversions.” If so, they can convert the after-tax dollars to Roth within the 401k, and you won’t need to deal with your brokerage and transferring funds.

[Jule]

This is called the MEGA backdoor Roth IRA. The money is after tax converted to Roth within your 401k.

This takes the 401k limit from $23,500 to $70,000 – includes the match in the limit.

[Jill]

Your company determines if this is allowed and when. My company mandates that I wait two years to access that money for a backdoor Roth.

[Joel]

So, you have a mega backdoor Roth 401(k) option. Yes, you should be converting to Roth. Does your plan support Roth In-Plan conversions?

Could you instruct the plan to do automatic Roth In-Plan conversions of After-Tax contributions?

If so, this will save you a ton of time and taxes.

It saves time by avoiding the phone calls and it saves on any taxes you might have to pay on converting the earnings on the growth of the After-Tax contributions.

[Kris]

It depends on the plan. Unfortunately my plan does not have this provision.

[Mark]

I have fidelity and with that it is easy to automate the mega back door conversions with a phone call going forward

[Author]

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