If catchup and TIRA contributions are included, a maximum of $60.5K can be placed into Roth accounts each year (e.g., $16.5K in a Roth 401k, $5.5K in a Roth 401k catchup, $32.5K rolled over from 401k after-tax contributions, $5K rolled over from nondeductible TIRA contributions, and $1K rolled over from TIRA catchup contributions). $38.5K of this is money that would have otherwise gone into taxable investment accounts. Of course, this assumes the 401k plan allows after-tax contributions, in-service distributions, and that the person can afford it.
No, it doesn't seem like this is something that would be allowed, but essentially all information I've read suggests that it is legitimate. I'm using this strategy now that the $100K income limit for Roth conversions has been eliminated.
If the IRS comes out and says this isn't allowed, in a worse case scenario, I'll roll all 401k funds into the Roth IRA (i.e., pre-tax plus after-tax). This is certainly allowed, just like TIRA to Roth IRA conversions are allowed. Of course, I would need to first leave my employer and I would have to pay taxes on the pre-tax contributions, but overall, this would still be a financial benefit.
