My wife has an after-tax option available in her 401(k) at work, and we can put about $24,000 annually into it with the intention of making in-service withdrawals to a Roth IRA. There are a couple little catches in the Summary Plan Description rules, however, so I'd like to hear thoughts on our strategy and if there might be a better way to implement it.
Limitations
1. Every individual after-tax contribution must "mature" before it is eligible for in-service rollover to Roth IRA, and mature is defined by the plan as being inside the after-tax account for at least 12 months.
2. The plan allows only 2 in-service withdrawals per calendar year.
3. The plan does not allow different asset allocation in the after-tax account vs. the pre-tax account (it's one single setting).
Strategy
My thought process is that the best approach is the put as much money into as few after-tax contributions as possible. For example, if we do $6,000 per month from January 2024 through April 2024, we could do two in-service rollovers (end of February 2025 and end of April 2025) for $12,000 each and minimize the amount of time the contributions grow inside the after-tax account.
Since we also do Backdoor Roth every year for each of us and prefer not to mess that up, I think we'd just take the tax hit on the growth portion and roll both after-tax contributions + after-tax growth into the Roth IRA. Open to thoughts on that also, though, if there's a reason to split out the growth portion into a Traditional IRA and ruin the Backdoor Roth.
Limitations
1. Every individual after-tax contribution must "mature" before it is eligible for in-service rollover to Roth IRA, and mature is defined by the plan as being inside the after-tax account for at least 12 months.
2. The plan allows only 2 in-service withdrawals per calendar year.
3. The plan does not allow different asset allocation in the after-tax account vs. the pre-tax account (it's one single setting).
Strategy
My thought process is that the best approach is the put as much money into as few after-tax contributions as possible. For example, if we do $6,000 per month from January 2024 through April 2024, we could do two in-service rollovers (end of February 2025 and end of April 2025) for $12,000 each and minimize the amount of time the contributions grow inside the after-tax account.
Since we also do Backdoor Roth every year for each of us and prefer not to mess that up, I think we'd just take the tax hit on the growth portion and roll both after-tax contributions + after-tax growth into the Roth IRA. Open to thoughts on that also, though, if there's a reason to split out the growth portion into a Traditional IRA and ruin the Backdoor Roth.
Statistics: Posted by 9-5 Suited — Sun Jun 23, 2024 8:38 pm — Replies 3 — Views 271