Stuff 401k after tax for mega back door Roth next year?

[corn18]

Planning to retire 31 Mar 2021 @ age 55. I have set my 401k pretax withdrawals so that my IRS limits are met before I leave ($19,500 + $6,500). Need the tax break. I can also contribute to my 401k on an after tax basis that I can then convert into my external Roth IRA. That would be another $24,633. I have plenty of money in my taxable, so don't need it there, so I wouldn't mind doing this. Balances at retirement:

401k 656,785 (all non Roth)
Roth 282,668
Taxable 816,831
TSP 3,418 (G fund placeholder in case I want to use it)

Plan to do 401k conversions starting @ 56 and should be able to get the 401k converted in the 12%/15% tax bracket by the time I hit 70.

Seems like it would be good to take advantage of the opportunity to get more money into my Roth account if it doesn't impact my retirement spending.

Thoughts?

Thanks,

Corn

 

[bada bing]

I did that this year. I knew I was getting a buyout, but the severance date was dependent on regulatory approval for an asset sale. I could have potentially been severed as early as May. I started the year with 65% of salary into the 401K to max it out quickly. I had the all source contribution limit max'ed with catch-up by May 1. I ended up not getting severed until end of Sept. Not a big deal at all as long as you have money to cash flow day to day expenses. Another issue is what happens to your match if you max out the annual limit early. In my case, the match was redirected into my non-qualified deferred contribution account, so no big deal.

The "Mega-Backdoor Roth" is a far underutilized tactic IMO. Moving what would otherwise be taxable savings into Roth space for no additional taxes is a no-brainer.

 

[Al in Ohio]

I did that this year. I knew I was getting a buyout, but the severance date was dependent on regulatory approval for an asset sale. I could have potentially been severed as early as May. I started the year with 65% of salary into the 401K to max it out quickly. I had the all source contribution limit max'ed with catch-up by May 1. I ended up not getting severed until end of Sept. Not a big deal at all as long as you have money to cash flow day to day expenses. Another issue is what happens to your match if you max out the annual limit early. In my case, the match was redirected into my non-qualified deferred contribution account, so no big deal.

The "Mega-Backdoor Roth" is a far underutilized tactic IMO. Moving what would otherwise be taxable savings into Roth space for no additional taxes is a no-brainer.

How does a backdoor ROTH get moved from TIRA for NO additional taxes? I thought you were still paying a lower tax rate than anticipated in the future?

 

[bada bing]

The whole point of the backdoor Roths - both regular and mega - is to move after tax money into a sheltered Roth account. The money is after tax, you don't get to deduct the contribution. It costs nothing additional to move what would otherwise be normal, after tax savings into a Roth if you use the backdoors. Roth money is tax free on withdrawal. The taxes saved by the tactic are the taxes on all the accrued gains while in the Roth.

 

[corn18]

I did that this year. I knew I was getting a buyout, but the severance date was dependent on regulatory approval for an asset sale. I could have potentially been severed as early as May. I started the year with 65% of salary into the 401K to max it out quickly. I had the all source contribution limit max'ed with catch-up by May 1. I ended up not getting severed until end of Sept. Not a big deal at all as long as you have money to cash flow day to day expenses. Another issue is what happens to your match if you max out the annual limit early. In my case, the match was redirected into my non-qualified deferred contribution account, so no big deal.

The "Mega-Backdoor Roth" is a far underutilized tactic IMO. Moving what would otherwise be taxable savings into Roth space for no additional taxes is a no-brainer.

I agree. I started late (2015), but manage to cram $180k into me and my wife's Roths via back door and mega back door contributions. That $180k in contributions has grown to $245k, so we are going to get at least $65k of tax free gains. And I keep my Roths @ 100% total market index to maximize the growth. If everything works as planned, our kids are going to thank us for a large, tax free Roth inheritance.