After tax 401k: rollover to Roth IRA or Roth 401k

Workday / Consultant
gf jj

Go to company page Workday Consultant

gf jj
Aug 24, 2020 17 Comments

There is a fee to rollover to Roth IRA and I need to call fidelity to make it happen. For rollover to Roth 401k, there is an option to automatically do that for each paycheck. The latter seems more convenient.

I do not need the funds which I contribute in my after 401k. What is the benefit of rolling over to Roth IRA?

If you do rollover to Roth IRA, do you also rollover the gains and pay tax on it?

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TOP 17 Comments
  • Netflix
    _rocky

    Go to company page Netflix

    _rocky
    This is called Mega Backdoor Roth. Google it. There’s plenty that’s said about it.
    Aug 25, 2020 3
  • Roth IRA. For Roth 401K I don’t think you can withdraw the funds until you leave your employer. And secondly when you do withdraw funds prior to 59.5 you’re forced to take out a mix of both contributions and earnings. The earnings you pay a penalty for. For Roth IRA you can withdraw the contributions first
    Aug 25, 2020 8
    • i can give more info on the trade offs but I only will if you really need it because I kind of don’t feel like typing it all out. However what I will say is that you shouldn’t have any growth, because as soon as you contribute to after tax 401K, you should immediately roll it over to the Roth IRA. Sometimes you might have a delay of a few days before you can rollover, so in that case there might be a tiny bit of growth. But it’s not really going to matter so you can do either or.
      Aug 26, 2020
    • Netflix
      _rocky

      Go to company page Netflix

      _rocky
      @lan5k Read it for yourself - https://www.fidelity.com/viewpoints/retirement/401k-contributions

      Specifically -

      “After-tax contributions to your workplace plan can be withdrawn without taxes or penalties. Any earnings on those after-tax contributions are considered pre-tax balances—so taxes would have to be paid on withdrawals of the earnings (unless they are rolled over to an IRA) and there may be a 10% penalty if you're under age 59½.”
      Aug 26, 2020
  • New / Finance
    MalcolmCFP

    New Finance

    PRE
    Merrill Lynch
    MalcolmCFP
    There likely isn’t an option to roll out your funds from after-tax 401k to Roth IRA until you leave the company or turn 59.5. If that’s the case, your only option is to auto-convert to Roth 401k each quarter and move the whole thing to your Roth IRA in a lump sum whenever you leave the company.
    Aug 25, 2020 1
    • Netflix
      _rocky

      Go to company page Netflix

      _rocky
      You can convert after tax 401k to Roth IRA before leaving the company. I have done it. There isn’t an automatic way to do it. When it’s not automatic, it creates a taxable event. For example, say you put $100 in after tax 401k, but when you convert it to Roth (401k or IRA) say it had grown to $110, then you have to pay taxes on $10 growth. When you do automatically, you don’t allow it grow before you put in Roth (again, 401k or IRA). So there isn’t a taxable event.
      Aug 25, 2020
  • Facebook / Eng
    gone4$$$

    Go to company page Facebook Eng

    gone4$$$
    Roth IRA
    Aug 25, 2020 1