Backdoor Roth 401k Maximum Contribution Calculation
A 53 year old client changed jobs last week. He contributed $19,000 to his previous company 401k and they matched him 5,000. His new company offers a 401k AND an after tax option as well with in-service withdrawal privileges. Given the maximum allowable contribution to a defined contribution for 2018 is $61,000 for those 50 and older, how much can he contribute in AFTER TAX dollars his new company’s retirement plan so he can then maximize the Mega Backdoor Roth IRA option? By my calculations, he can defer an additional $5,500 into his new company 401k plan and if his new company matches him $1,650 then can make a total after tax contribution of $29,850 ($61,000 – $25,400 of total deferrals – $5,000 previous company match – $1,650 current company match)??
Am I correct?? Thank you!
Permalink Submitted by Alan - IRA critic on Mon, 2018-04-02 18:14
The 55,000 annual additions limit applies per plan, so the current job with unrelated employer has potential space for employee after tax contributions of 55,000 – 1650 or 53,350. Catchup contributions are disregarded in this calculation and there is only room for 5500 of elective deferral catchup contributions. However, the new plan will probably place a lower limit on after tax contributions if there is any possibility of forfeitures or ACP testing failures. If the ACP test is failed and client already converted the after tax sub account to Roth, it will create a messy situation including an excess Roth contribution.