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re: Mega Backdoor Roth Contribution
Posted on 7/12/18 at 7:43 am to Teddy Ruxpin
Posted on 7/12/18 at 7:43 am to Teddy Ruxpin
There are a few key issues -
The after tax contribution (note - NOT Roth) is part of the ACP testing (normally pnly made up of employer match).
The problem here is that in a lot of cases, those looking to do the mega back door Roth are part of the Highly Compensated for Testing, and you would need some staff also doing the after tax, or a match contribution which is already passing the ACP with flying colors. So it pretty much needs an employer with some very specific situations in order for it to work (i.e. an employer where there are no Non Highly to test against, etc. or one with so many Highly's that the 20% top group limit limits the Highly's and allows a decent number of good earners to contribute and still pass)
A lot of plans are adding the In Plan Roth Rollover option, which would easily allow for this (all within the plan). The bigger issue is only a small fraction of plans allow voluntary after tax contributions in the first place.
The after tax contribution (note - NOT Roth) is part of the ACP testing (normally pnly made up of employer match).
The problem here is that in a lot of cases, those looking to do the mega back door Roth are part of the Highly Compensated for Testing, and you would need some staff also doing the after tax, or a match contribution which is already passing the ACP with flying colors. So it pretty much needs an employer with some very specific situations in order for it to work (i.e. an employer where there are no Non Highly to test against, etc. or one with so many Highly's that the 20% top group limit limits the Highly's and allows a decent number of good earners to contribute and still pass)
quote:
Most 401ks don't have in service distributions which is what you need to pull it off
A lot of plans are adding the In Plan Roth Rollover option, which would easily allow for this (all within the plan). The bigger issue is only a small fraction of plans allow voluntary after tax contributions in the first place.
Posted on 7/12/18 at 11:48 am to Tigerstark
Ya that's my issue as well, no voluntary after-tax contribution allowed, just the ROTH 401k option.
Though, I can't really complain as I get both a 401k and 457, which is like having a mega-401k instead. If I had a mega ROTH option, it would be ridiculous.
Though, I can't really complain as I get both a 401k and 457, which is like having a mega-401k instead. If I had a mega ROTH option, it would be ridiculous.
Posted on 7/12/18 at 12:22 pm to Tigerstark
quote:
The problem here is that in a lot of cases, those looking to do the mega back door Roth are part of the Highly Compensated for Testing, and you would need some staff also doing the after tax, or a match contribution which is already passing the ACP with flying colors. So it pretty much needs an employer with some very specific situations in order for it to work (i.e. an employer where there are no Non Highly to test against, etc. or one with so many Highly's that the 20% top group limit limits the Highly's and allows a decent number of good earners to contribute and still pass)
Goodness, I know retirement and investing decently well and this made my brain hurt.
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