Back Door ROTH IRA
I am hearing about a “mega” back door ROTH IRA. As I understand it you are allowed to contribute a total of $54,000 to a 401k; combined employee and employer contributions. You are allowed $18,500 (under 50) and if your employer doesn’t match at all. then the difference is all after tax contributions. Then, they can be rolled out to a ROTH. Of course that’s IF your employer allows that. IF they don’t allow that, then when you sever employment you can rollover the entire 401k as follows; the contributions that were after tax can be rolled into a ROTH tax free and everything else can be rolled into an IRA. IS that correct?
Permalink Submitted by Alan - IRA critic on Sat, 2018-01-20 03:48
That is basically correct. The total annual additions limit this year is 55,000, but the plan may not let you contribute all the way up to 55,000 if they think the after tax contributions might result in an ACP testing failure, which would cause the plan to have to return excess contributions. Plans also vary on the frequency that you can either roll the sub account balance out to a Roth IRA or into the plan Roth account, as the case may be.