Jump to content

Employer 401k has no brokerage window option. What should I do?


Recommended Posts

Posted

Likewise, while the Roth IRA (contribution limit $5.5k, $6.5k after 50) is unavailable to individuals earning more than $129k (couples $191k), I make a "back-door" contribution to a non-deductible Traditional IRA before converting to a Roth IRA a day later.

 

(Adding another $64k to non-dividend paying individuals stocks every year and I'm pretty tax efficient.)

Posted

WOW - thank you James22.  I never realized that was possible with after-taxed non-roth contributions.  My company does allow for after-tax non-roth, and i called me provider and they claimed they allowed in-unit distributions of these at any time. 

 

I have an email in to our HR for more info.

 

thanks!

Posted

WOW - thank you James22.  I never realized that was possible with after-taxed non-roth contributions.  My company does allow for after-tax non-roth, and i called me provider and they claimed they allowed in-unit distributions of these at any time. 

 

I have an email in to our HR for more info.

 

thanks!

 

Yes 401K after tax contribution rolled over to Roth IRA is a less understood under-utilized option not many people are aware of or have access to. Good way for high earners to stuff more of your net worth into Roth IRA.

Posted

can someone help me with the mechanics here?  I am technically rolling it to roth in a similar way a ira-to-roth conversion would be done, correct?  It looks like I will owe tax on the earnings?  So if I roll to a roth, I will end up with +/- earnings/loss for the time period between when the contribution occurred and when the rollover form can be processed?

 

Also, there is a high likelihood I will need to tap my IRA assets before 59.5 in order to fund my lifestyle if/when I quit my job to focus on asset management.  Roth IRA principal can be tapped penalty free up to your contribution basis.  For roth conversions and after-tax 401k roll overs to roth's, is this counted towards the principal contribution basis?

 

any other issues/pitfalls I should be aware of?

Posted

can someone help me with the mechanics here?  I am technically rolling it to roth in a similar way a ira-to-roth conversion would be done, correct?  It looks like I will owe tax on the earnings?  So if I roll to a roth, I will end up with +/- earnings/loss for the time period between when the contribution occurred and when the rollover form can be processed?

 

Also, there is a high likelihood I will need to tap my IRA assets before 59.5 in order to fund my lifestyle if/when I quit my job to focus on asset management.  Roth IRA principal can be tapped penalty free up to your contribution basis.  For roth conversions and after-tax 401k roll overs to roth's, is this counted towards the principal contribution basis?

 

any other issues/pitfalls I should be aware of?

 

I am not a tax advisor here but having done this, this is my understanding.

 

Yes your 401K administrator will send you a check for the amount rolled over. You have 60 days to deposit it into Roth to avoid early withdrawal penalties if I am not wrong. You owe taxes on the difference between the rolled over amount and contribution. Typically if this is done every 6 months or so, that is not a huge amount to be concerned about. Note: If you lose money during the period there is no tax loss allowance for it

 

The entire rolled over amount is considered "rollover contribution". 5 year clock starts for this the year you do the roll over and after 5 years the principal is available to be withdrawn without penalties. Withdrawal rules are like the Roth conversion thing and age alone doesn't determine the withdrawal penalties. So if you want to tap the rolled over contribution before or after 59.5 penalty free, you need to have it invested for 5 years at least.

 

Here is a good overview of distribution rules (this is treated just like a conversion).

 

http://fairmark.com/retirement/roth-accounts/roth-distributions/distribution-overview/

 

Posted

Thanks.  I know that in doing an after-tax ira conversion to roth, you are supposed to treat all IRA's as one in determining a pro-rata basis.  I also saw a similar rule for after-tax 401k conversions. 

 

However, does anyone know whether the basis for the after-tax 401k conversion must include any other ira accounts I have in the pro-rata basis calc.

 

I guess for example, Say I have the following:

 

Roth 401k: 2k

401k: 60k

IRA: 200k:

Roth IRA: 100k

 

Say I want to contribute 20k after-tax to a 401k, and them immediately rollover to a Roth IRA with no earnings or losses.  Is the basis:

 

A.  20k          B. 1.81k (20*(20/(200+20)))                C.  1.42k (20*(20/(200+60+20)))

 

I am hoping the answer is A ...

Posted

Thanks.  I know that in doing an after-tax ira conversion to roth, you are supposed to treat all IRA's as one in determining a pro-rata basis.  I also saw a similar rule for after-tax 401k conversions. 

 

However, does anyone know whether the basis for the after-tax 401k conversion must include any other ira accounts I have in the pro-rata basis calc.

 

I guess for example, Say I have the following:

 

Roth 401k: 2k

401k: 60k

IRA: 200k:

Roth IRA: 100k

 

Say I want to contribute 20k after-tax to a 401k, and them immediately rollover to a Roth IRA with no earnings or losses.  Is the basis:

 

A.  20k          B. 1.81k (20*(20/(200+20)))                C.  1.42k (20*(20/(200+60+20)))

 

I am hoping the answer is A ...

 

I am guessing it is A too, but I didnt have any deductible IRA left to worry abt. All converted to Roth. Probably best to ask a tax advisor or do some research on that Fairmark forum.

Posted

Unfortunately, I think it is B  :(

The below link goes through an example to illustrate

http://www.marketwatch.com/story/backdoor-roth-ira-conversion-tax-free-2013-04-30

 

Proportional distribution is a well known rule for Traditional IRA to Roth IRA conversion. However I am not completely sure if After Tax 401K is treated as traditional IRA (If I had to guess --I would guess it is not so unless you roll over your after tax 401K to Traditional IRA first---not sure why anyone would do that)

Posted

However I am not completely sure if After Tax 401K is treated as traditional IRA (If I had to guess --I would guess it is not so unless you roll over your after tax 401K to Traditional IRA first---not sure why anyone would do that)

 

After-tax 401k contributions went directly to my Roth IRA when I quit my job.  The pre-tax contributions went directly to "Rollover IRA" -- from there, I eventually did a Roth conversion.

Posted

This is a great thread. Question for the experts here.

 

I'm trying to do the backdoor Roth as described here. I currently have no other money in a traditional IRA. However, I plan to rollover a previous workplace 401k sometime soon.

 

If I contribute $5500 to a traditional IRA, convert it to a Roth tomorrow, and then a week later rollover a workplace 401k to a traditional IRA, do I

1) have to pay taxes on that rollover because I did the traditional IRA --> Roth in the same year, OR

2) avoid the taxes because the rollover happened after I did the traditional IRA --> Roth?

 

 

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
×
×
  • Create New...