Mega Backdoor Roth Improved - In Plan Conversion

[@Chris-py3ec]

There is also another big advantage of transferring out to a Roth IRA(outside of your 401K bucket) every pay period. You can actively manage what investments are right for you(ETF's/Mutual Funds/individual socks etc...) instead of having to choose whatever options are available within your companies 401K plan.

[@WillPeterson]

Great point, i glossed over that a bit because my 401k options are so fantastic, but this could be a very big consideration for some people

[@sointoyou8153]

@@WillPeterson Yup, huge advantage when investing. It gives you complete control over your investments. One important thing i'm not sure you've looking into...using the Roth IRA to form an LLC to purchase real-estate. Self-directed IRA helps you diversify into real estate. Crazy :)

[@Kazukat]

@@sointoyou8153 Whaaaaaat? How would that work in practice? I hope there's another video out there to break it down ;-)

[@kyguy1289]

Doesn't Fidelity allow for you to open a Brokerage link account and fund it with 401k money so you can choose your own investments that way?

[@Chris-py3ec]

@@kyguy1289 It really depends on the company you work for and what is available to you. Most companies have set numbers of investment vehicles for you to choose from, so you have less say in what individual companies you can invest in.

[@keithzxchen]

You are genius, it is the best explanation I have discovered. Most explanations stop half way through, and do not talk about the ultimate optimization.

[@WillPeterson]

Thanks Keith!

[@sarahjagenberg5620]

Can't thank you enough. This is exactly what I was hoping to find to explain to Fidelity what needs to happen.

[@tatangl14]

Fidelity should hire you to explain the after-tax contributions. Thanks again!

[@dietcurt]

Fidelity has employees that are all trained on this exact procedure (I used to be one of them lol)

[@Ericsogm]

Wow... how did I not know about this. I found your first video and was immediately thinking about how putting the earnings into a traditional IRA would mess up my backdoor IRA, so glad you made this update. Thanks for creating these videos I will definitely be using this strategy to maximize my Roth accounts. My plan only allows me to contribute 10% after tax, but its still something! Subscribed

[@WillPeterson]

Great! I'm so glad you find it useful!

[@i-chunhuang8413]

Wow I didn't realize I also have the in-plan conversion option until you mentioned your 401k was in fidelity.....lol Thanks for this awesome video!

[@travis1240]

I agree with Will : Automatic In plan conversions are the way to go if you have access to it. Since the automatic conversion happens quickly, there are no earnings to speak of while the money is in the after-tax bucket and before it enters the Roth bucket.

[@changhaoliu7119]

Does "Automatic In plan conversions" convert to Roth IRA or Roth 401K?

[@trentbdog]

Great video and great info. Thanks for taking the time to make it. My 401K is with Fidelity too. They do require you to call them to set up the after tax contribution with the immediate Roth conversion feature. But it’s easy, and a great feature!

[@OliverJanShD]

Nice video man! I'm starting my megabackdoor roth journey for the first time and your videos have been super helpful!

[@rjkbuny]

lol, literally was just watching the other video and had this question of how you can split earnings into a traditional IRA. Thx for clarifying!

[@YingcredibleTips]

Not all employer plans offer this in plan conversion. But if they do, you should definitely do it! Vanguard allows you to turn on automatic conversion on the site.

[@TheSingingDoctor325]

It's a shame so many plans don't offer this.

[@reynoldscf95]

Thanks for updating your last video! This is awesome information.

[@fbp018c]

This is a BRIILIANT explanation of how to do an immediate Roth conversion of my after-tax contribution. Luckily, my emplyer's Roth 401k through Vanguard allows it, so I was able to set it up! Thanks Will!

[@nimo-k7u]

Hands down the clearest and most succint explanation I've seen. Thanks for the helpful visuals! Would you consider making videos about CRT/CLT/DAF? I find the info on those very opaque, but they could be excellent resources for reducing tax liability (especially when dealing with RSUs!) and increasing control over where your money goes.

[@jennylee7247]

This is so clear! Thank you so much!

[@thomasreedy4751]

I have been doing this for a couple of years. The Fidelity call to get it started took very little time as the associate knew exactly what I was asking for. The purpose was probably to make sure I knew the additional tax requirements. I was a bit taken a back when doing my taxes because of the confusing pro-rata rules and determining if they apply. So my advice would be that if you start including roll overs as a part of your financial plan, you should do a more in-depth investigation on how your actions affect your taxes and also consult a cpa if it isn’t clear.

[@poojavenugopal1933]

Can someone please simplify that pro-rata rule for me please? I watched some videos but none of them explained in detail with examples. My previous employer's 401k is still with the previous employer. If I open a new 401k through my current employer at a different investment company and contribute to my current employer's 401k and max out $19.5k, am I still allowed to make $6k non-deductible contributions to Traditional IRA and move it to a ROTH IRA (I am over the income limit for ROTH IRA)? Will Pro Rata rule apply here? Need some advice 🙏🏼

[@Andre-Nader]

Great video as always. My employer 401k is also through fidelity and the in plan conversion option is presented as a check box in the screen where you set your contribution %’s. So it’s possible! Don’t miss the days when I had to call them every 2 weeks to do the old method. I personally still then roll it into a Roth out of habit ( and my plan allows it). But there may be additional protections by keeping it in the 401k ( don’t recall the specifics of hand here).

[@WillPeterson]

Good data point. I just double checked my contribution page in Fidelity and there's definitely no option. So it must be plan/employer specific toggle button.

[@Andre-Nader]

@@WillPeterson here is a screenshot imgur.com/a/GTJjXfS should reach get your benefits team to ask for it (to help future savers at the company!)

[@changhaoliu7119]

Does "Automatic In plan conversions" convert to Roth IRA or Roth 401K??

[@patrickmorrow6934]

Thanks for sharing your insight. Almost didn't recognize you in the small frame. Long time since the Earhart days.

[@KenBeaconHill]

Excellent explanation as usual

[@AndrewSinclairPlus]

Great video. I knew about all of this but I may share it with friends since you laid it out so concisely. One other weird thing is that After-tax contributions are per employer. So there's a scenario where you could max out the Mega-Backdoor contributions at one employer, move to another employer in the same year, and then max out the Mega-Backdoor contributions again. It's a very rare scenario and would be difficult to plan for but it's an interesting idea.

[@WillPeterson]

Wow, I didn't realize that! What a cool loophole.

[@kingmaker1985]

Wouldn't this create any issues in tax filing?

[@claytonschneider8063]

​@@WillPeterson hey will, really enjoy your videos and simple explanations, this is actually my first youtube comment lol. anyways -- to add on to andrew's point, you can maintain multiple 401ks per employer, you may be interested in creating a solo 401k for any money as a youtuber assuming you are structured as a sole prop. james at wci has a great post about multiple 401ks: www.whitecoatinvestor.com/multiple-401k-rules/ and harry over at the finance buff has one on doing this within a solo 401k: thefinancebuff.com/executing-mega-backdoor-roth-in-solo-401k.html if your youtube revenue is sufficient enough for this to make sense, please do a video on executing dual mega backdoor roths at your employer and via your self employed solo 401k!

[@AndrewSinclairPlus]

@@kingmaker1985 What sort of specific issues would you expect to come up? You should be ok as long as you only contribute $19,500 (2021 limit) Traditional/Roth across all 401(k) plans you are enrolled in. That limit is the employee limit.

[@kingmaker1985]

@@AndrewSinclairPlus I was confused with employer limit and employee limits. As you said, if the contributions are within the limits, there shouldn't be any problems in taxes

[@temperament3660]

Some firms, e.g. Fidelity, allow you to do an in-house conversion into a Roth IRA if you have this account with them. This I think represents the best of both worlds: you get the investment choices in an IRA with the convenience of an in-house conversion.

[@tiffanyh6496]

this is insanely helpful, thank you for your service!! please make more videos are your favorite niche FIRE topics!

[@srinip825]

Absolutely the best videos on this subject. Thanks so much for explaining this and the protests rules. Does this require the employer to support the after tax no broth in addition to Fidelity supporting this? Thanks agaie

[@WillPeterson]

Yes, unfortunately it has to be part of the plan the employer has set up

[@green1way]

Great info thx

[@rahilmansuri8655]

Awesome explanation!

[@TheSavingSecret]

Will done. Still trying to figure out if my plan allows me to this but very excited

[@abr7192]

My company’s 401k administrator is Fidelity. Fidelity told me the in-plan conversion must be done via phone and cannot be automated. Also, the earnings associated with the after tax contributions must be included with the in-plan conversion. So, this step will generate a tax event on the converted earning portion.

[@WillPeterson]

Interesting. Mine is also fidelity but allows the automatic in plan conversion. It must be an attribute of the specific plan negotiated with your employer. Indeed earnings always go along for the ride, and are taxable. My first mega backdoor roth video goes over that. Luckily with the automatic conversion, it's instantaneous before any earnings can be earned.

[@justanothernonexistentterminal]

Consider yourself lucky. Just got off the phone with Fidelity and they told me my plan doesn't allow for just after tax contributions to be rolled over, a portion of my pre tax contributions must be rolled over with it. Never heard of such a thing. I'm going to call again tomorrow and ask the question again on the off chance the Fidelity person was mistaken.

[@krishna337]

If the automatic rollover option isn't present, they should still be able to rollover your after tax contributions into roth 401k and earnings into traditional 401k. Please check

[@couponerkitty-7091]

Hi Will. Thank you so much such clear explanation. I have a question for withdrawals from Roth IRA. Following the ordering rule, if I took all my regular contributions and I need more from Roth IRA, how does tax and penalty work from backdoor for earnings (i.e., earnings in after-tax 401k) and contributions to after-tax 401k within 5 years and after 5 years? I guess for this, earnings and contributions to after-tax 401k are BOTH treated equal as non-taxable in ordering rules after mega backdoor Roth, right? because we pay tax on earnings when we do the mega backdoor. On the other hand, if I do in plan conversion first, then rollover to Roth IRA, how are contributions and earning in Roth 401k treated after rolled to Roth IRA? How are tax and penalties calculated? TIA!

[@jfg617]

Very interesting, never heard of “after-tax non-roth 401k” before... My employer’s 401k only offers traditional and roth, $19,500 annual limit.

[@WillPeterson]

your experience is typical. The after-tax, non Roth option has been rare, but more and more are offering it as it becomes more well known,.

[@DYNE540]

@@WillPeterson my friend works for the company Lyft (not a driver) and his account is the first one i've seen like this. the components in the account are stated as the following contribution types: Traditional 401(k), roth 401(k), and After-Tax 401k. the verbiage fidelity provides on the after tax 401k contribution type is as follows "...similar to roth, however earnings are taxable. After-tax contributions allow additional savings beyond the standard irs limit up and are counted towards the annual additions limits ($57,000 for 2020).

[@WillPeterson]

Yep! That type of contribution is exactly what we are talking about here. Good for Lyft and your friend!

[@terrysmith128]

And when the dollar fails we will all wonder wtf

[@priestesslucy]

@@terrysmith128 what does retirement investment have to do with the strength (or lack thereof) of the dollar?

[@regimatic]

Great update. Thanks.

[@thegaryliao]

Great information! Just came from your 3 years ago video, thanks for your reply. I just wanted to point out 5:16 Roth-in-plan conversion isn't a good option. Even it grows tax-freely, but normally employers provide very limited investment options. Those lousy mutual funds claim 7% in a good year, but usually worst than S&P index. IMO it's better rollover as much as possible to Roth IRA. Some people buy Tesla stock, ARK ETF, gold, bitcoin/cryptocurrency, house, land...all kind of crazy investment tax free. But, I guess at the end of the day it all depends on risk tolerance.

[@travis1240]

Also depends on your plan. Mine offers low-cost index funds as well as a "brokerage" option where I can invest in almost anything inside the 401k. Also, the automatic in-plan conversion allows you to quickly "rothify" your contributions, protecting them from tax on earnings. From there you can roll over to a Roth IRA at your cadence and leisure (say once a year if you desire)

[@thegaryliao]

@@travis1240 Good point on the quickly "rothify"!

[@Chris-py3ec]

@Gary L 100% agree. I would much rather decide my investment strategy vs. picking from a limited selections of 'so-so' mutual funds.

[@chanhuang614]

Thank you for the video. If you do in-plan conversion (after-tax 401k bucket to roth 401k), i wonder if the company matching would stop early.

[@moneymarc4079]

Needed this video - maxing out my HSA, Roth IRA, and Roth 401(k) this year and trying to figure out what's next...this is it! Any word on how this may be hindered by Build Back Better?

[@hannahl9306]

Thanks for sharing!

[@evanhirsch6940]

Helpful information. One small thing - it is my understanding that if you already have had ANY other Roth account for 5 years, then the new Roth monies do not need to be in the new account for 5 years before they can be accessed penalty free.

[@cc-to2jn]

Yeah, I was gonna say the same. I think you are right.

[@chennailocal]

Hi- good video .. q question, why would contributed to their Roth 401(k) versus trying to roll over from after tax contributions? Essentially if the goal is to move the dollars to Roth 401k plan , why don’t we do it front? Because Lord of administrators limit you, in terms of the number of in plan conversions, you can do in any year. Would like to get perspective on this.

[@WillPeterson]

Contributing directly to the roth 401k is fine... Only up to the annual limit of $23000k. Once you hit that maximum, you can still contribute more money to the after tax 401k (and then convert to Roth).

[@angstfree2008]

Can you do both the backdoor conversion (regular, IRA>ROTH) and the mega backdoor when there are income limitations?

[@markgoergy6622]

Hello Will, really appreciate the informative video. I was wondering if this would still be adventageous as a small business owner with a safe harbor 401k in place?

[@burjoes]

One thing I haven't seen much discussion of is the trade off between paying taxes now vs later if you're a high income earner now but won't be in retirement. If I'm in the 35% tax bracket now, but would be in the 22% tax bracket when I retire, how do I determine whether it is worth it? It seems like the answer is based on how long between now and retirement for the smaller initial investment to grow larger than what the traditional 401k/IRA would have grown to if you'd put in a larger amount since the limits are higher for traditional. Or maybe I'm not following something.

[@RemGb10]

Is the after tax contribution only from paycheck? Or can I make a lump sum payment ask my 401k after tax non Roth contribution... Reason I ask is we have not been investing much so have money saved and wanted to try to get it in to Roth IRA sooner than later. Thanks for the great video by the way. You explain things very well

[@behrensf84]

I hope empower retirement let’s you do it too... going to check it out on Monday...

[@WillPeterson]

Fingers crossed for ya!

[@bryanperf]

I also have Empower. Were you able to find out if they allow automatic in-plan conversions to Roth?

[@behrensf84]

@@bryanperf I talked to them and HR at the company I work at. Currently you can’t do the mega back door Roth, but at my suggestion, they are looking into it... might be a few months to get the change approved, and change how the contribution website for the company works, and there are some fees the company needs to pay to change the 401k plan mid year...we’ll see what happens... it’s in the interest of the highest paid employees of the company, so it should get done...

[@bryanperf]

@@behrensf84 Thanks for the response. Good luck!

[@mikelong3444]

🔥

[@brittlindgren1443]

Could someone clarify - why would you choose to contribute to the `after-tax non-roth 401(k)` and then have it rolled over to the `roth 401(k)` vs. just contributing directly to the `roth 401(k)`? I feel like I missed the reason for taking that less direct path.

[@WillPeterson]

There's a higher annual contribution limit. You'd only take this approach if you've already maxed out the normal 401k annual limit.

[@stevewilliams1834]

The Roll Over Roth IRA has many more investment options. Question? do you have to max out your roth 401k or can you still do in plan conversion

[@pmaurin]

Can you address how the pro-rata rule applies or not, when one has pre-tax money in the plan at the time of after-tax to ROTH conversion? I expect this to be the case for most people that are able to make after-tax contributions after maxing out the pre-tax limit of 19,500.

[@WillPeterson]

Pro Rata rule does not apply to pre-tax money in 401ks. It only comes into play if you have pre-tax money in a traditional IRA, and do conversions from traditional IRA to Roth IRA

[@pmaurin]

@@WillPeterson Do you have any references to the pro-rata rule not applying to pre-tax money in the 401k? I'm asking because I have searched far and wide and I have not been able to find anything definitive. The best I have found is the IRS notice 2014-54 (www.irs.gov/pub/irs-drop/n-14-54.pdf) which explains the ability to separate pre-tax and after-tax as you have explained in the video. In paragraph II, Section II Background, it mentions that when a participant's account balance in a plan includes both after-tax and pretax amounts, then it "will include a pro rata share of both after-tax and pretax amounts."

[@WillPeterson]

@@pmaurin I think the discussion here explains it best: www.reddit.com/r/financialindependence/comments/7d0kbc/pro_rata_rule_for_mega_backdoor_roth/

[@pmaurin]

@@WillPeterson Super helpful! Thanks!

[@hornbaker]

A different angle on Mega Backdoor... you don’t have to be a high earner to max it out - you can use it as a conduit to shift money from savings into Roth. If you contribute an extra $10k to After-Tax 401k while simultaneously taking $10k from savings to pay living expenses, you are effectively moving $10k from a taxable savings account to a tax-free Roth retirement account.

[@WillPeterson]

Brilliant point.

[@Chris-py3ec]

heheh... I had the same idea!

[@bryanperf]

This is a great point. Although I would hesitate to do this because I don't like the idea of having to wait 5 years to access the rollover in the Roth if I needed it. But if I had other savings I would definitely consider this.

[@hornbaker]

@@bryanperf The 5-year lockup period applies to conversions, not to rollovers. The move of funds from After-tax 401k to Roth is a non-taxable transfer of like-kind funds, so a rollover and not a conversion. (As always, verify with your tax advisor.)

[@sointoyou8153]

@@hornbaker Are you sure about this? My employer considers them "rollover conversions." I was told that I can pull-out the original $6k contributions (as I have already had a roth open for 5 years), but that any new "rollover conversion" money had to sit there for 5 years before I can access it.

[@stevewilliams1834]

With the lousy 401k choices do I have to max out my employer pre-tax/Roth to do a Mega backdoor. I would like to put all income in post tax and do the automatic conversion

[@sdpoll]

Thank you for the video. One update: my fidelity account allows in-plan conversions with just a checkbox. Not sure if others do. Another question: do your 401k contributions by employer and employee and IRA contributions all count towards that $49,000 limit?

[@loopba]

Thanks for these videos. My employer allows post-tax contributions, but no in-plan distribution or conversion while employed, only once leave the company. Will i be able to use that annual $58k after tax in this scenario?

[@mims2582]

401k Roth still subjected to Rmds

[@marklamberson4131]

If you do either; an in plan conversion, or an in service withdrawal, to roll over the after tax money to a Roth, are you not subject to the pro-rata rule? My plan only recently made the Roth option available (so I am heavy on pre-tax dollars), and the after tax contributions and in plan conversions will soon be available. I would like to be educated when that happens. Thanks Love your content and explanations.

[@ivyzeng2224]

Can you access to the money you converted into roth ira before age of 59.5？ Does the fove year rule apply? Or can you only access to the amount you contributed at anytime but not the gain?

[@THEELITEFEWful]

What if you just make one large contribution at the end of the yr and then roll it into the Roth at the beginning of the following yr like Jan 1

[@megalomaniac7972]

Just got the in plan conversion option. Just to make sure I understand this correctly, 2023 is a $66k total limit, right?: I would setup my normal contributions to my roth 401k (maxing my individual contribution limit at $22,500), then my employer would kick in their contribution lets say $7000, so I would have $36,500 left in my total limit to add in after-tax-non-roth contributions right? When you call Fidelity to enable the in plan conversion do you also tell them you would like to contribute $36,500 for the in plan conversion?

[@dec1slh]

IRA accounts still have better investment options than 401k accounts (at least mine do) so I still call Fidelity every 2 weeks when my after-tax contributions is available to roll it into an IRA, event though my plan allows for automatic in-plan conversion to Roth 401k.

[@scotttracy9333]

Can i ask, after 2 years are you still calling Fidelity every 2 weeks?

[@kale5847]

This is cool. So how do you know if you have access to the Roth 401k?

[@adam4382]

You can access your after tax in plan conversion Roth any time w/o penalty because that is after tax, but you would just need pay the tax on earnings prorated when you withdraw the money.

[@aperson1181]

do you have a last video link?

[@nhungngayxuathanai6970]

Do I have to fill out any special tax form when i roll my employer after tax over to my Roth IRA? Really loved all your videos!

[@WillPeterson]

You just need to include it on line 5a and 5b on the main tax return form 1040. If the after-tax money had accumulated any earnings before you rolled it to Roth, those earnings would be taxable in box 5b.

[@nhungngayxuathanai6970]

@@WillPeterson really appreciate your response.

[@michellepowell5548]

Do you get a form at the end of the year from fidelity with both amounts for 5a and 5b? Or is that something you tracked and calculated manually?

[@scotttracy9333]

​@@michellepowell5548 ​ Did you ever get an answer?

[@ramesherrabolu1590]

Wondering how long one has to park the money in After-Tax 401K bucket before it can be moved into a Roth IRA outside of 401K plan. Assume the individual is willing to pay taxes on the earnings

[@aromo4800]

So can you do both a mega back door roth rollover and regular back door roth rollover? And what are the total contributions you can do?

[@MD-pz3cn]

Yes to both, since there are no limits on defined conversions, only defined contributions. Single filer for 2023, $6500 backdoor amount for Traditional IRA-> Roth IRA. And then for mega backdoor, the general limit on total employer and employee contributions for 2023 is $66,000 ($73,500 with catch-up). Max amount you can convert from after tax 401k to Roth IRA will depend on your company's matching percentages, as that converted amount needs to fit into the $66,000 ($73,500 with catch-up) total limit made up of employee AND employer contributions. Easy way to figure out that amount is to deduct your (A) employer contributions from (B) $43,500. B - A = amount you can convert.

[@maolinzuo7149]

I have contributed pre-tax to the annual limit. Since the in plan conversion involves Roth 401k (seems to share the limit with pre-tax 401k), am I still able to it?

[@WillPeterson]

the annual limit is a limit on the amount of direct contributions you can make to Roth401k. Not on how much you can CONVERT from after-tax to Roth. Seems crazy, but its real.

[@maolinzuo7149]

@@WillPeterson what a relief. 🙏 thank you

[@wellingtong2620]

For the Roth in plan conversion of your after tax money… does it need to go through an after tax 401k before going into the Roth 401k, or can it go directly into your Roth 401k and then when you leave your company be rolled over into Roth IRA? BC the Roth 401k account is already an after tax account…

[@WillPeterson]

Money can go directly into your Roth 401k no problem, but such contributions are subject to the annual limit of $20,500. If you go to the after tax bucket first, it allows you to contribute much more over and above 20500 in a year.

[@ignaciom32]

So do I need to fill out form 8606 if i do the mega backdoor? I want to do a backdoor roth and mega. Do i need to put the mega on form 8606 as well? Also. If i roll it over like you mentioned with the earnings (the mega), how do i document to pay taxes? Thank you

[@WillPeterson]

Mega backdoor alone should not require form 8606. Form 8606 is used for the following: (1) non-deductible contributions to traditional IRA (2) conversions from traditional IRA to Roth IRA (3) distributions from Roth IRA. Mega backdoor doesn't involve any of these steps. All you would need to do is document on your main tax return form 1040, lines 5a and 5b. The amount of the entire rollover goes in box 5a, but only the taxable portion (the earnings accrued in the after-tax 401k that get rolled to Roth) would go on box 5b

[@ignaciom32]

@@WillPeterson Thank you Will! Great video and great response. You have helped me greatly.

[@Alex-B2357]

Can I then make withdrawals of the contributions if I need them? Only the contributions not the earnings.

[@detroitengineering782]

Do I have to max out my pretax earnings before I can roll over my after tax 401k into roth IRA

[@user-ig8tv3il1m]

In my experience no - we're set up to max out our 401k over the course of the year, but we're also contributing some to the Mega Backdoor Roth & I rollover the after-tax-converted-to-Roth-funds the day after each payday - even though the 401k won't be maxed out until December

[@rshahriar16]

I have couple of old 401k. But current job has mega backdoor facility. If I do in-plan post-tax to roth, do I have pay pro-rata tax on my old 401k?

[@debeshkumar3200]

My 401K plan does not allow in-plan conversion of after-tax contribution to Roth. I called Fidelity to set up distribution of after-tax contribution (& associated earnings) to a Roth IRA. He suggested I transfer the after-tax contributions to Roth IRA, but the associated pre-tax earnings to a rollover IRA. I'm wondering if this inhibits my ability to do a backdoor Roth - will the pro-rata rule apply to rollover IRAs, like it does to Traditional IRAs?

[@jckclt]

I've watched several video's on this, and this is by far the best explination of the mega back door roth ira i've seen. You're correct, you have to call Fidelity to enable it. Having said that, your employer has to make the option available to you first. Quick question, I know that you can't have an IRA open with money in it when you do a back door roth ira. The same isn't true for the mega back door roth ira, correct? Meaning I can have money in an IRA account that I rolled over from a 401k, that hasn't had taxes paid on it, and still do the mega backdoor roth. Is that correct?

[@wasxz2000]

I have the exact same question .. for the mega back door roth conversions , I assume money sitting in a IRA account should not trigger the pro-rata rule. can someome please confirm?

[@grd5077]

Great video. This might be a dumb question but, does the after-tax contribution have to come directly from your paycheck to your 401(k) company? Or can you make an after-tax contribution directly to your 401(k) company by sending them a check from your personal checking account? Thank you so much

[@WillPeterson]

Unfortunately it can only happen via paycheck deduction

[@aperson1181]

Are you allowed to do this with 457b plans?

[@polardog5443]

Hi, thanks for the videos, just learning about all these strategies. If I am self employed and do not have a solo 401K, but contributes via SEP IRA, is that money already in a type of "traditional IRA"? Can I still apply the backdoor strategy? Please advise, thanks!

[@091MW2]

Do you need the after tax non roth option to do a mega back door roth ira? Can you just contribute to a Roth 401k and roll that over to a roth IRA?

[@WillPeterson]

You can do that, but that wouldn't count as a mega back door Roth IRA. With that approach you're still limited by the normal annual contribution limits for Roth 401ks. The after-tax, non Roth 401k gives you much higher annual contribution limits

[@091MW2]

@@WillPeterson Ohhh, gotcha that's a good point. Thanks for clearing that up!

[@peterwang2224]

If I'm still employed, does it mean I can't rollover the roth 401k contributed via the mega backdoor to a roth IRA account?

[@mountainmonkey15]

So you can contribute to a standard 401k, take the tax write off, and then roll it over to the Roth 401k? Saving maximum money? Can you do this with an IRA and Roth IRA too?

[@WillPeterson]

Not quite. This is not a "standard 401k", this is a special after-tax 401k that does NOT get a tax write-off. I explain it a bit more here kzbin.info/www/bejne/nGeXqYOblNJ_sJo

[@sarahtisdale3094]

Are in-plan conversions from after-tax-non-roth to roth-401k subject to pro-rata tax rule ... if one has a large pre-tax IRA from previous employer?

[@KK-ix9mf]

No, AFAIK. Pro-rata rule only applies from pre-tax to after-tax, such as IRA to Roth IRA conversion or non-deductible IRA from backdoor IRA, BUT not from after-tax to after-tax. Also the topic this vidio talked about - after-tax-non-roth to roth-401K are all happening within 401K so no money goes to IRA, yet.

[@Yopperpo]

Hey will - what software are you using here to create these animations?

[@WillPeterson]

Believe it or not: Good ol' Microsoft Powerpoint!

[@kylesisak976]

Can this also be done by having after tax portion rolled into Roth IRA and growth into traditional IRA and do a Roth conversion?

[@WillPeterson]

You can indeed split it: roll the after tax contributions into Roth IRA, and the growth into traditional IRA. But THEN converting that growth from tIRA to Roth IRA is unnecessarily complicated. If you want to do that, you might as well just roll the whole thing into Roth IRA in the first place, it would be effectively the same.

[@kylesisak976]

Great thank you! Also, one more follow up question. If my employer continues to match in the after tax 401k. When rolling all to Roth IRA, how is the employer match treated in terms of taxes? Growth or contributions?

[@anthonyca]

I am in a 401a which I can put over 60k a year pretax. There are a couple problems, there is no self managed potion, the returns are abysmal, there is no in-service option for roll out.

[@Micahpickles]

What if I have been contributing to after tax for a few years now and didn’t know about this? I’m at about $50k and don’t know what part of that is gains. Thanks for help in advance.

[@sujaykadam99]

Does a roth 401k have after tax non-roth basket?

[@unknownchannel3141]

Can you focus on Finance alone?

[@LuisAlfonsoGarciaSegundo]

Hi Will, why I need to do the mega Roth the same year? Is that a rule or a suggestion? I had contributed after tax to my employer plan a few of years ago (2017-18) now I know I can do the In-service distribution and split the money between the Roth IRA (post tax contributions) and the traditional IRA for all my earnings. Please help

[@WillPeterson]

It's just a suggestion, not a rule. in general, you want to try to minimize the time the money sits in the after-tax 401k, because during this time any earnings it makes are taxable. Once you roll it into Roth, any future earnings are tax free.

[@paullim580]

Is it not an option to immediately transfer the After-Tax Non-Roth contribution to the Roth IRA the same way that the money gets transferred immediately to a Roth 401k? This way there won't be any earnings to the After-Tax Non-Roth 401k, and there would be no need for the tIRA.

[@thyroidnodule]

Thank you! I have a quick question about rollover IRA. I have a rollover Ira from my last employer, if I set up a Roth IRA, do I need to pay taxes on Roth contribution? Thanks!

[@WillPeterson]

having a rollover IRA with pre-tax money in it should not affect your ability to make REGULAR contributions to a Roth IRA. the only impact is if you make too much money to make regular contributions to a Roth IRA ( www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2021 ) and have to resort to the backdoor roth.

[@thyroidnodule]

Thank you! Sorry I didn't make it myself very clear, I meant backdoor conversion in my situation. I wonder if I need to pay taxes on my after-tax contribution to the backdoor IRA contribution? I know how to do backdoor Roth conversion, just not sure how much taxes I need to pay on the contribution since I already have a rollover IRA?

[@thomasreedy4751]

@@thyroidnodule From my understanding after-tax 401k can be rolled directly into a Roth IRA. No additional taxes. However pro-rata rules state that you can’t just roll over your after-tax amount from a traditional Ira to a Roth IRA. If the after tax amount is 10% of all of your combined traditional iras, then 90% of your roll over is pre-tax money and will be taxed accordingly. This pro-rata rule does not apply to in-plan conversions of employer savings plans as long as the brokerage accounts for after tax 401k contributions Separately from the pre-tax. I am not an accountant so I recommend you do some research by looking at the tax forms and contact a cpa if it is too confusing.

[@thomasreedy4751]

Your employer may allow you to roll your “401k to Ira roll over” back into their plan ... removing it from the pro-rata calculation. And allowing for a simplified after-tax traditional IRA to Roth IRA conversion.

[@vishalnaidu524]

i did this and now I have both pretax 401k + roth 401k in the same fidelity account, is it possible to move only the Roth 401k part to an individual Roth IRA or the pro-rata rule kicks in due to the mixing?

[@ballhogjon]

My employer's 401k manager says that I have to be 59-1/2 years of age before I can rollover after tax non roth contributions into a roth ira. Is that true? If so, then this isn't a great idea for folks under that age.

[@jetah50]

just some video critique. the titles of videos popup cover your upper right space which is where you are. you might want to consider moving that to the upper left.

[@WillPeterson]

Great tip! Thanks!

[@bryanpiper2293]

Do you know if this can be done when working for a not for profit and the 403(b) programs

[@michael-ju8tv]

Wow, a mega backdoor roth video while not wearing a wife beater shirt!

[@robertdunn7157]

I don't have the ability to do the mega backdoor but I have been Disabled for 5 years now and unable to contribute to my ROTH because I don't have earned income. I left my 401k as is all this time but now want to do a rollover to an IRA. Is there any way to put 150,000. from 401k into my Roth without losing a chunk of it?

[@MatthewFling]

I want to do a backdoor Roth conversion. Could use some help.

[@kingmaker1985]

Are you sure that it is combined limit of $19,500 to contribute to employer sponsored 401k and Roth IRA? I have not seen such a combined limited mentioned in anywhere. Can you confirm?

[@WillPeterson]

Clarification: it's a combined limit for employer sponsored pre-tax 401k and employer sponsered Roth 401k. It is NOT about Roth IRAs. www.investopedia.com/retirement/401k-contribution-limits "If you have multiple 401(k) accounts, your total contributions to all of them-both traditional and Roth-can not exceed that $19,500 limit."

[@kingmaker1985]

@@WillPeterson That helps. Thank you for your videos!!

[@deblin7919]

If you do the in-plan conversion to the Roth 401K, is that still subject to the $19,500 limit? Or $58K?

[@travis1240]

$58K. That's the whole point of the in-plan conversion.

[@mikecarpio9749]

No, but you have to contribute to the after-tax side, then do the auto conversion to roth 401k. The after-tax contribution limit goes to the difference of $58k minus company match, minus the $19,500.

[@megalomaniac7972]

@@mikecarpio9749 Do you set the amount you want to contribute to the after-tax side? Like would I do my normal $22,500 (individual contribution limit for 2023) to my roth 401k, get the normal employer match - $7k, then be able to set the amount that goes in after tax? So in this case I believe the total cap is $66k (2023 total limit?) and I would have already put in $29,500 ($22,500+$7k), leaving $36500 left to add. Of that amount can I tell Fidelity I would only like to add $32,500 of in plan conversion? Then do they split that across my paychecks for the year?

[@mikecarpio9749]

@@megalomaniac7972 yes. But I think you do it in percentages on Fidelity's website. Just be carefu if you get raises as you might over-contribute (they said the system would auto stop when it reaches the limit, but I never got close to the limit to see if it worked). Their customer service is hit or miss, so I called two or three times to confirm. The last person was knowledgeable and knew what I wanted to do. The good thing is you can regularly track it using the transaction history (YTD) to see if you close to your annual limits.

[@megalomaniac7972]

@@mikecarpio9749 That's a good point about raises! I'll make sure to keep an eye out that. I was also told the system will prevent you from over contributing (at least on the initial contribution limit 22.5k).

[@WeMakeVideosCA]

But if I put money in after tax non Roth and auto roll it over to 401k Roth I won't get my employees contributions? Can I roll over more than the Roth 401k limit???

[@mikecarpio9749]

Company matches goes through the regular 401k bucket; none goes to the roth 401k. But keep doing it as it's still "free" money. Secondly, you can roll over from another previous employer plan ad is not subject to the $58k limit

[@crosscreek1146]

Hi! I’m planning to do the after tax contribution to my 401k and mega Roth conversion right away, to a Roth IRA account, just the same as what you mentioned in the video. But an accountant remind me of the “IRA Aggregation Rule”, that because this conversation, my Roth IRA account will be “aggregated” with my traditional IRA account, and any eligible distribution in the future will trigger the pro-rata taxation. Is it right? Please help. Thanks.

[@WillPeterson]

IRA aggregation rule lumps all Roth IRA accounts together for tax treatment, as if all the money was in a single Roth IRA. It also lumps all tIRA money together, as if it was in a single traditional IRA. It should NOT lump traditional and Roth money together.

[@USMC198907]

Why do backdoor or mega backdoor at all over just an investment account if household annual income over limit for ira? Seems only reason is tax diversification.

[@hornbaker]

I don’t like the automatic in-plan conversion because you lose the ability to withdraw contributions or roll it to an IRA without quitting your job. I’ll take the tax hit on the gains to preserve that. (I.e., the money is classified as if it were a direct Roth contribution, and not a rollover to Roth, the latter normally not being locked into the plan)

[@travis1240]

Legally it has to be classified as a rollover. Are you sure you're reading your plan correctly?

[@hornbaker]

@@travis1240 it’s possible this was something unique with my company’s plan at Fidelity, but it’s a red flag worth investigating before leaping into it. In my case, the rules were quite clear and verified with Fidelity that funds swept nightly using the automatic in-plan conversion from After-tax 401k to Roth 401k were no longer eligible for rollover without terminating employment (or being over 59-1/2) - so, restricted like Roth contributions, not unrestricted like a roll-in.

[@johnb1571]

would be great if my company allowed this. they dont so i just do the pre-taxed and roth 401k. i had complained and they are looking into another company. so until that happens i am stuck with what we got.

[@WillPeterson]

Yeah it's a real shame more don't offer this!

[@christopherdecker8166]

If I’m leaving my employer how do I move my 403b to my Roth IRA?

[@TheSingingDoctor325]

Yes, you can but you'll have to pay regular income taxes on it.

[@rlandauro]

does someone know the name of the non roth- after tax accounts? I have fidelity… I’ve filled my 2022 401k bucket at $20,500, I have 2021 Roth IRA bucket full with 6000 and I have 2022 Roth IRA bucket full… I have $10.05 in my Traditional IRA… Can someone explain to me how to open this NON ROTH AFTER TAX ACCOUNT???? Thanks!