retire2020
Recycles dryer sheets
- Joined
- Sep 22, 2012
- Messages
- 459
Same here.
My 401k allows after-tax contributions *and* in-service withdrawals of after-tax contributions (and their earnings). Both are needed for this to efficiently work. So after I max out my before-tax and age 50 catchup contributions ($17.5K plus $5.5K in 2014), I max out my after-tax contributions to my 401k ($34.5K minus employee contributions to my defined benefit pension since these count against the limit) and then immediately roll the after-tax contributions into a Roth IRA. This is all defined by the IRS 415c limit.
I started building-up after-tax contributions in both an IRA and my 401k in 2007 when I learned the law would change in 2010 to allow Roth conversions at any income level. To date, I've made over $300K in backdoor Roth contributions. These are funds that would have otherwise gone into taxable accounts and now they are tax free.
It is a free lunch if your 401k plan allows it.
I wish I had known this all these years. I've been with same Megacorp for last five years and missed out on this big time. I'm also in the process of moving my rollover IRA account to my megacorp 401K account which'll allow me to backdoor convert another 6500. All together, I'll be converting about 23K per year into Roth IRA..sweet.
BIG thank you to 'Gauss' to point this great feature out and 'Panecea' to point out to look into IRA-->MegarCopr 401K and then use backdoor Roth IRA conversion.
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