Mega backdoor Roth

Adobe acrobat
May 7, 2018 27 Comments

Looking to hear only from this who actually do mega backdoor Roth conversions on a regular basis, not those who may have just heard or read about it.

I make after-tax contributions (and max out pre-tax) from my paychecks to my 401k account at Vanguard. The 401k plan allows taking in-service withdrawals of the after-tax contributions without any penalties. I have a Roth IRA account also with Vanguard. I would like to move the after-tax contributions from 401k to Roth IRA ASAP to avoid any tax on earnings. So I go to Vanguard’s website under my 401k plan to rollover the after-tax part into the Roth IRA account. I don’t see an option so I call Vanguard up and here’s what they tell me:
- it’s possible to do what I want to do but,
- I’d have to do it over phone by calling them after each contribution to initiate the roll over
- not just that, but after I call them, they’ll mail out, yes mail out, some forms which will take 7-10 business days to arrive that I need to fill and sign and mail them back - every 2 weeks to do the rollover after each paycheck.
- once they receive the paperwork, the rollover process takes another week at least.
- the agent mentioned that if I had a Roth IRA account outside of Vanguard they would not need the paperwork each time but still would need me to call them to initiate the process.

All of this sounds like it’s a deliberate attempt to make the process too difficult. Also it sounds backwards that Vanguard would make it easier to rollover the money to a Roth IRA account outside Vanguard than keep within.

Is it so difficult to do this everywhere? Do other employers / brokerages make it easier? Ideally I’d like this to happen automatically or at least self-service on the website rather than having to call each time.

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TOP 27 Comments
  • Google / Eng
    sergey

    Google Eng

    BIO
    Haha
    sergeymore
    I convert the after tax contribution to Roth 401k after every paycheck. In our case, it is possible to do everything online.

    I never tried to roll it to Roth IRA.

    Why do you want to do that instead of using Roth 401k?
    May 7, 2018 6
    • Google / Eng
      sergey

      Google Eng

      BIO
      Haha
      sergeymore
      I see. In my case I just choose a target fund and forgot about it.
      May 7, 2018
    • Adobe acrobat
      OP
      Another reason - Roth 401k needs you to take RMDs at 70 while Roth IRA does not.
      May 7, 2018
    • Google / Eng
      sergey

      Google Eng

      BIO
      Haha
      sergeymore
      You can always convert to Roth IRA once you stop working to avoid the RMDs.
      May 7, 2018
    • Adobe acrobat
      OP
      Yeah thanks for that MSFT. I did see that but there’s some account fees associated with maintaining a self-directed brokerage in the 401k. And it doesn’t allow to invest in REITs. And transaction fees are also charged. While my Roth IRA in Merrill Edge has 100 free transactions per month.
      May 7, 2018
    • Adobe acrobat
      OP
      That’s right Sergey - so yeah RMD is not a reason.
      May 7, 2018
  • Apple CbOf51
    Sounds about right. I work for Apple. I can do the MBD rollover up to 4x/yr, and I need to fax or mail in the form to do so. I can’t initiate it electronically or on the phone.

    I fax the form in to my 401k provider every 3 months, then my 401k provider sends a check in the mail to my Roth IRA account at schwab.

    Not convenient if you’re going to do it every paycheck. I don’t mind the hassle 4x/year but I do find the process to be silly.
    May 7, 2018 7
    • Workday jhddx
      Interested to know how fo you deal with earnings accumulating on after tax contributions
      May 5
    • Adobe 3d0bA
      @Workday
      Do you plan to do in-plan Roth conversion? Or transfer from after-tax to Roth IRA? If latter, which financial institutions are the accounts in?
      May 6
    • Workday jhddx
      I am leaning towards Roth IRA. My accounts are with Fidelity
      May 7
    • Adobe 3d0bA
      The you should transfer as often as your plan allows you to so you can avoid accumulating earnings on after tax portion.
      May 8
    • Workday jhddx
      Theres a $25 fee to transfer to Roth IRA. So i think 4x or 2x a year makes sense. Do you transfer to Roth IRA? If yes, how often. And do you transfer earnings to Roth IRA too?
      May 8
  • Google / Eng AlphaOne
    Google does the backdoor. It’s through vanguard too. Unlike you though, I have an option online to directly transfer it to my Roth.
    May 7, 2018 2
    • Adobe acrobat
      OP
      And you mean Roth IRA, not Roth 401k? Just want to make sure because I do have the option to rollover to in-plan Roth 401k but not out of plan to my Roth IRA.
      May 7, 2018
    • Google / Eng AlphaOne
      Yes. Roth IRA
      May 8, 2018
  • Microsoft cc2345
    Microsoft/Fidelity allows you to convert to Roth after each paycheck as well if you call Fidelity. There is nothing else beyond that is you make the call. The difference between that and the quarterly conversions is your tax exposure. You are taxed on any earnings, so the quicker you convert to Roth, the less time for earnings to grow where they will be taxed.
    May 7, 2018 2
    • Adobe acrobat
      OP
      Believe you are also talking about Roth 401k and not Roth IRA?
      May 7, 2018
    • Microsoft iethanhunt
      There is auto rollover to Roth 401k in fidelity.
      Aug 22, 2018
  • This comment was deleted by original commenter.

    • Adobe acrobat
      OP
      Auto-rollover would be great. Sounds like it may have to do with rules of the employer/broker combination.
      May 7, 2018
  • Google huiklop
    I have everything at vanguard and can rollover anytime online.
    May 7, 2018 0
  • Google huiklop
    Try navigate to "employer plans", then "manage my money", then "manage my loans and withdrawals", "estimate and request a withdrawal", and check "move after tax money to vanguard Roth IRA"
    May 7, 2018 3
    • Adobe acrobat
      OP
      Thanks. Following this, after I click on “estimate and request a withdrawal”, I get “choose your withdrawal amount” and then only 2 options: electronic bank transfer, or check. No other option like move to Roth IRA that you mentioned.
      May 7, 2018
    • Google huiklop
      I can only see the option if there actually is after tax money available for rollover.
      May 7, 2018
    • Adobe acrobat
      OP
      I do have after tax money available. Yet not seeing the option.
      May 7, 2018

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