Mega backdoor Roth

Adobe
acrobat

Go to company page Adobe

acrobat
May 7, 2018 28 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 28 Comments
  • Google / Eng
    sergey

    Go to company page Google Eng

    BIO
    Haha
    sergey
    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
    • Adobe
      acrobat

      Go to company page 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

      Go to company page Adobe

      acrobat
      OP
      That’s right Sergey - so yeah RMD is not a reason.
      May 7, 2018
  • 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
  • Apple
    CbOf51

    Go to company page 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 8
    • 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, 2019
    • Apple
      bVoi43

      Go to company page Apple

      bVoi43
      Pardon my ignorance. If income is above the threshold you can’t contribute to a Roth account right?
      Jan 6, 2020
  • Google / Eng
    AlphaOne

    Go to company page 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
  • This comment was deleted by original commenter.