Mega Back Door Roth IRA Strategy – Age out at 59.5??
I have seen repeated references to the fact that you cannot implement the Mega Back Door Roth IRA strategy if you are over 59.5.
I am over 59.5 and I have been doing the Mega strategy. I did not know there was a limitation and I don’t understand it.
In 2014 and 2015, I asked my 401k sponsor to issue a check to Vanguard and the check was to include all after tax funds in my 401k. They did so, and I deposited it into my Roth IRA. I am preparing to do this again in December 2016.
My 401k sponsor seems to know and understand the strategy, so am I (and they) missing something? Am I in trouble?
Thanks for any help!
Permalink Submitted by Alan - IRA critic on Mon, 2016-08-08 04:00
No reason you cannot do this after 59.5 if your plan allows the distribution from the separate sub account.. The taxes are reflected on the 1099R issued by the plan and if there are earnings in the after tax sub account, the 1099R would show the taxable earnings in Box 2a. I am not aware of the references you refer to that this would be a problem.
Permalink Submitted by Richard Hoffman on Mon, 2016-08-08 20:27
Thank you for your response. Here is one of the references I have seen that seems to imply that a person over 59.5 cannot (or at least should not) employ the mega back door Roth IRA strategy. It was written by Jeffrey Levine.
https://irahelp.com/slottreport/backdoor-roth-conversion
Mr. Levine states: “With that in mind, a young (pre-59 ½) client can make after-tax contributions to their plan on an ongoing basis. Then, periodically and preferably before there are significant gains on those amounts, they can take a distribution of those funds and have them converted to a Roth IRA.”
Permalink Submitted by William Tuttle on Mon, 2016-08-08 23:36
Mr. Levine is talking about what you can do, not what you can not do.IRS regulations do not allow you to make in-service withdrawals of employee salary deferrals before 59.5. However, it does allow (but not require) a 401k plan to allow in-service withdrawals of other assets including after-tax contributions.Therefore, a company can offer both after-tax contributions and in-service withdrawals of those contributions. This is what makes Mega backdoor Roths possible. Nothing in any of this precludes someone over 59.5 from doing this.