Did this noob get After Tax and Roth conversion right?

New / Eng
Za4rt8

New Eng

Za4rt8
Jan 7, 2019 10 Comments

Assume using Fidelity at Msft.

1) I contribute to "after tax" 401k bucket.

2) I select automatic conversion quarterly to Roth 401k.

3) At the end of quarter I call Fidelity and ask them to convert the Roth 401k funds to my Roth IRA, assuming I opened an account in the meantime. (Don't have it currently). This conversion makes the earnings also tax free.

4) Once the funds are in my Roth IRA, I can withdraw the "principal" tax free and penalty free anytime. Earnings can be withdrawn tax free and penalty free only after 59, if account has been open for 5 years.

5) I should keep documents of the contribution amounts/times and transfers to Roth IRAs times to only withdraw principals.

6) profit.

Anything I'm missing?

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TOP 10 Comments
  • No. Step 2 and 3 don't mix. You either convert from after tax non deductible 401k to Roth 401k or to Roth IRA. I have not seen anyone convert a Roth 401k to Roth IRA while they are still working at the company. I don't even know if that's possible. You can't avoid paying tax on your earnings. When you do step 2, that will trigger a tax on your earning. If you skip 2 and do 3, you also pay tax on earnings. Converting from after tax non deductible 401k to a Roth account, 401k or IRA, are both allowed depending on your plan. However for some reason, Fidelity allows you to do after tax 401k to Roth 401k conversion automatically but not for Roth IRA
    Jan 7, 2019 8
  • New
    Baboly

    New

    Baboly
    You either do 2 only and skip 3, or you skip 2 but in step 3, convert from after tax to Roth 401k or Roth IRA.
    Jan 7, 2019 0