My company does not offer a Roth 401k, but does offer a regular 401k to which I can make after-tax contributions. The limit on contributing directly to a Roth IRA for 2009 is $5000. However, the total limit in after-tax contributions to a 401k in 2009 is $49,000 - "pre-tax contributions".
If my plan allows in-service rollovers of after-tax dollars can I just load it full of after-tax contributions and then roll it over to a Roth? Or if they don't just wait until I leave my job and rollover the after-tax money to a Roth? In that way I am not limited to $5000. Is anyone doing this?
To enter a coupon code in your post please enter the following info:
Coupon Code:
Coupon Offer:
Merchant:
Expires (optional):
Restrictions (optional):
saving...
Quick Summary is created and edited by users like you... Add FAQ's, Links and other Relevant Information by clicking the edit button in the lower right hand corner of this message.
I don't think you can roll over a 401k until you leave your current employer. Second you are off by a bit on your 401k limits, the limit is 16.5k for 2009 unless you are self employed.
chimeer, I think it depends on the 401k provider if they will let you do an in-service rollover and under what circumstances. Also, 16.5k is only the limit for pre-tax contributions.
Edit: http://www.forbes.com/forbes/2008/0225/046.html "Employers and 401(k) plan administrators don't advertise this fact, but most workers 59 and a half and older, and even some younger ones, can roll over 401(k) funds while they're still working and contributing to the plan."
Message edited by: cashistrash on 2009-10-11 17:16:00 CDT
chimeer said:I don't think you can roll over a 401k until you leave your current employer. Second you are off by a bit on your 401k limits, the limit is 16.5k for 2009 unless you are self employed. If the OP is on good terms with his employer, he might be able to arrange a strategic firing.
I've seen people with multi-million-dollar IRAs at age 50.
Apparently it was some type of roll-over from a business retirement plan and the business was folded up. It was explained very clearly to me, but I have actually seen them.
Crazytree said:I've seen people with multi-million-dollar IRAs at age 50.
Apparently it was some type of roll-over from a business retirement plan and the business was folded up. It was explained very clearly to me, but I have actually seen them.
cashistrash said:However, the total limit in after-tax contributions to a 401k in 2009 is $49,000 - "pre-tax contributions".
If my plan allows in-service rollovers of after-tax dollars can I just load it full of after-tax contributions and then roll it over to a Roth?Yes, you can do that. There are no restrictions on withdrawals of after-tax contributions, as long as your plan allows them. In 2009, you need to meet the income limit for Roth conversions; in 2010 that limit will be repealed.
I did this at my last job (to a traditional IRA, planning to convert in 2010); my current job doesn't allow after-tax contributions. But does your job's plan allow unlimited contributions other than the $49,000 limit? After-tax contributions are subject to the discrimination tests that apply to elective deferrals, and non-highly-compensated employees usually make very little after-tax contributions.
LH, thanks for your response. I'm not sure if the plan allows unlimited contributions other than the 49k limit. I have Vanguard and it appears I have the option on their site of after-tax contributions up to 75% of my paycheck. I am not a HCE so I guess that isn't a problem. (I'm also under the Roth conversion income limit)
But I read on another site that rollovers from a 401k with both after-tax and pre-tax contributions are treated as being in proportion to the total ratio of after-tax/pre-tax contributions in the account. So if I had 50k pre-tax and 50k after-tax and tried to just rollover the after-tax 50k, it would be treated for tax purposes as 25k pre-tax and 25k after-tax. Have you heard anything like that?
cashistrash said:LH, thanks for your response. I'm not sure if the plan allows unlimited contributions other than the 49k limit. I have Vanguard and it appears I have the option on their site of after-tax contributions up to 75% of my paycheck. I am not a HCE so I guess that isn't a problem. (I'm also under the Roth conversion income limit)
But I read on another site that rollovers from a 401k with both after-tax and pre-tax contributions are treated as being in proportion to the total ratio of after-tax/pre-tax contributions in the account. So if I had 50k pre-tax and 50k after-tax and tried to just rollover the after-tax 50k, it would be treated for tax purposes as 25k pre-tax and 25k after-tax. Have you heard anything like that?
Edit: Here is the site I was just reading http://www.fairmark.com/rothira/09030801-401k-basis.htmYou know, Fairmark usually knows what it's talking about on these questions that should be simple for professionals, but sometimes they say weird things. The method they describe kinda-sorta looks like it works, but I have some doubts about it.
What definitely works is for your employer's plan to elect to account for after-tax contributions as a "separate contract," as is explicitly, specifically permitted under sec. 72(d)(2). (The rules for calculating the taxable amount of an IRA or qualified plan withdrawal are in sec. 72, which originally covered annuities, so everything has to use annuity terminology like that.) Every plan I have personally seen that allows after-tax contributions does account for them as a separate contract, since things could be very complicated otherwise.
That means that you can't technically withdraw just after-tax contributions, but you can withdraw just after-tax contributions plus earnings on after-tax contributions. If the rollover happens quickly after the contribution, earnings will be minimal.
Crazytree said:I've seen people with multi-million-dollar IRAs at age 50.
Apparently it was some type of roll-over from a business retirement plan and the business was folded up. It was explained very clearly to me but I forgot the details.
My company 401k plan allows me to contribute max 25% of my gross pay to 401K. I contribute all 25% to post tax 401k and my company also allows in-service withdrawal only for post tax 401k, so every month i rollover the money to ROTH IRA without any tax obligation (well some times i earn a few cents of interest before i actually move the money to ROTH.)
You have to be careful on the 1099 form you get at the end of year to ensure that it says a not taxable transfer.
I had issues where fidelity initially made it a taxable transfer, but finally corrected it. SO just be sure to be on top of what the agents do for the 1099 form at the end of the year.
If you're self-employed, during good years you put large sums of money in SEP IRAs, and during bad years, you roll your SEP into ROTH.... taking care to minimize tax. If you don't expect to be self-employed for a long time, then you can push as much money up to $49k into SOLO 401k, then roll that into ROTH IRA over the years after when your tax bracket may be lower.
Those are my strategies to get as much as possible into ROTH IRA. I am in my mid-20's so I expect to have some low income years in the next 35 years to take advantage of the rollover potential. In the event I never end up having low income years, then I guess finances aren't really a problem for me, lol.
Can you really do this (contrib beyond the 16.5k as a post-tax contrib)?
I am very interested, if yes.
I did a very cursory search and found this:
How much can I contribute annually? For 2008 workers are able to contribute the smaller of: 1. the elective deferral limit of $15,500 (which is unchanged from 2007), or 2. up to 100% of includable compensation (must be less than the elective deferral limit), or 3. for those with employer matches or other employer contributions, limits are $46,000 or 100% of compensation (whichever is less). The employee is still limited to the employee elective deferral limit ($15,500 for 2008). An employer can add up to another $30,500.
Based on #3 it seems that you (assuming you don't own the company) can only contribute 16.5k of your money, regardless of pre- or post-tax classification. The remainder of the $49k is from employers.
Am I wrong or missing something?
cashistrash said:My company does not offer a Roth 401k, but does offer a regular 401k to which I can make after-tax contributions. The limit on contributing directly to a Roth IRA for 2009 is $5000. However, the total limit in after-tax contributions to a 401k in 2009 is $49,000 - "pre-tax contributions".
If my plan allows in-service rollovers of after-tax dollars can I just load it full of after-tax contributions and then roll it over to a Roth? Or if they don't just wait until I leave my job and rollover the after-tax money to a Roth? In that way I am not limited to $5000. Is anyone doing this?
Message edited by: lray on 2009-10-12 04:25:35 CDT
lray said:3. for those with employer matches or other employer contributions, limits are $46,000 or 100% of compensation (whichever is less). The employee is still limited to the employee elective deferral limit ($15,500 for 2008). An employer can add up to another $30,500.
Based on #3 it seems that you (assuming you don't own the company) can only contribute 16.5k of your money, regardless of pre- or post-tax classification. The remainder of the $49k is from employers.
Am I wrong or missing something?Yes.
Message edited by: LH2004 on 2009-10-12 08:17:44 CDT
You didn't identify the source or give enough context for us to tell whether the source is wrong or if you're just reading it wrong. Either way, anyone who says that employee (after-tax) contributions are subject to the elective deferral limit ($16,500 for 2009) is wrong. The limits are what was discussed earlier in this thread: the $49,000 limit on all account additions, the anti-discrimination limits on highly compensated employees and any limits under the terms of the plan.
lray said:Can you really do this (contrib beyond the 16.5k as a post-tax contrib)?
I am very interested, if yes.
I did a very cursory search and found this:
How much can I contribute annually? For 2008 workers are able to contribute the smaller of: 1. the elective deferral limit of $15,500 (which is unchanged from 2007), or 2. up to 100% of includable compensation (must be less than the elective deferral limit), or 3. for those with employer matches or other employer contributions, limits are $46,000 or 100% of compensation (whichever is less). The employee is still limited to the employee elective deferral limit ($15,500 for 2008). An employer can add up to another $30,500.
Based on #3 it seems that you (assuming you don't own the company) can only contribute 16.5k of your money, regardless of pre- or post-tax classification. The remainder of the $49k is from employers.
Am I wrong or missing something?I'm contributing 50% of my annual base-pay to my 401-k. The first $16,500 is pre-tax, and then everything beyond that the rest of the year is "after-tax" contributions. I think the total pre-tax + post-tax contributions can not exceed the $49K which you referenced.
My employer's HR dept. is particularly inept, so I often have to tell them about things they should already know. I am looking for some very solid background docs on it. I have the choice of Vanguard or TIA-CREF for my 403(b), if that matters....
LH2004 said:You didn't identify the source or give enough context for us to tell whether the source is wrong or if you're just reading it wrong. Either way, anyone who says that employee (after-tax) contributions are subject to the elective deferral limit ($16,500 for 2009) is wrong. The limits are what was discussed earlier in this thread: the $49,000 limit on all account additions, the anti-discrimination limits on highly compensated employees and any limits under the terms of the plan.
Message edited by: lray on 2009-10-12 20:32:24 CDT
My employer's HR dept. is particularly inept, so I often have to tell them about things they should already know. I am looking for some very solid background docs on it. I have the choice of Vanguard or TIA-CREF for my 403(b), if that matters....Unfortunately, most 403(b) plans do not allow after-tax contributions. I think that they're allowed to basically the same extent as in qualified plans (like 401(k)'s), but that doesn't help you if your plan doesn't want them.
Disclaimer: By providing links to other sites, FatWallet.com does not guarantee, approve or endorse the information or products available at these sites, nor does a link indicate any association with or endorsement by the linked site to FatWallet.com.
