Converting Roth 401(k) to Roth IRA?
02-12-2020, 12:55 PM
#131
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Joined APC: Apr 2008
Position: DAL FO
Posts: 2,143
Originally Posted by DWC CAP10 USAF
I'm having the Mega Back Door conversation with my CPA and Financial Planner, and they are not familiar with the Mega Back Door ability that our Delta 401k plan allows....they are asking is it just the basis? Does it create taxable conversions? A few other "technical" questions as well. I believe I know the answers but I want to show them in black and white.
Is there somewhere (Fidelity Net Benefits, Delta HR, etc) where I can find a plan document or something that spells out the Mega Back Door ability for my finance peeps?
Appreciate the point out!
Is there somewhere (Fidelity Net Benefits, Delta HR, etc) where I can find a plan document or something that spells out the Mega Back Door ability for my finance peeps?
Appreciate the point out!
You’re looking for the section the talks about “in service distributions”. What Ron said is correct about just the earnings on the 401a money being taxable. My experience is they tend to ask you on the phone if you want to roll all the after tax money out or just the basis, but since it’s usually negligible I just do it all. Never more than a couple bucks of earnings so it’s cleaner that way.
02-12-2020, 01:53 PM
#132
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Joined APC: Jul 2006
Position: The Right One
Posts: 588
Originally Posted by RonRicco
I don’t believe you will find anything related to the a Mega on the fidelity website.
It can create a taxable event on any earnings that the 401a money generates the short time it is there until it is removed. For example, you have 2k go into you 401A. You wait 2 days to call fidelity and in the mean time that 2k has made 30 cents. You would get a tax statement for 30 cents on which you would have to pay tax. The key is to call the next day to limit any tax implications.
It can create a taxable event on any earnings that the 401a money generates the short time it is there until it is removed. For example, you have 2k go into you 401A. You wait 2 days to call fidelity and in the mean time that 2k has made 30 cents. You would get a tax statement for 30 cents on which you would have to pay tax. The key is to call the next day to limit any tax implications.
True!
Also, if you haven’t hit the 415c limit yet for the year, they can roll the earnings from the 401a into your IRA, and you can avoid the taxable event until you take a distribution after retirement. You have to ask them to do it that way, had a Fidelity rep offer it to me last month.
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02-12-2020, 05:01 PM
#133
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Joined APC: Apr 2016
Position: Looking left
Posts: 3,251
Originally Posted by LeineLodge
Go to the fidelity net benefits website and download the Summary Plan Description (SPD). I think it’s on the DALPA website as well.
You’re looking for the section the talks about “in service distributions”. What Ron said is correct about just the earnings on the 401a money being taxable. My experience is they tend to ask you on the phone if you want to roll all the after tax money out or just the basis, but since it’s usually negligible I just do it all. Never more than a couple bucks of earnings so it’s cleaner that way.
You’re looking for the section the talks about “in service distributions”. What Ron said is correct about just the earnings on the 401a money being taxable. My experience is they tend to ask you on the phone if you want to roll all the after tax money out or just the basis, but since it’s usually negligible I just do it all. Never more than a couple bucks of earnings so it’s cleaner that way.
02-15-2020, 09:32 AM
#134
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Joined APC: Apr 2016
Position: Looking left
Posts: 3,251
Back Door IRA Contribution
For those that do the back door (so to speak) from traditional IRA to Roth IRA, since the MAGI is too high to contribute directly to the Roth IRA, it's my understanding you'd also be above the limit deduct the traditional IRA contributions, correct? And does that mean that technically the traditional contributions that you are going to back door are done with after tax money?
02-15-2020, 09:50 AM
#135
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Joined APC: Apr 2008
Position: DAL FO
Posts: 2,143
Originally Posted by DWC CAP10 USAF
For those that do the back door (so to speak) from traditional IRA to Roth IRA, since the MAGI is too high to contribute directly to the Roth IRA, it's my understanding you'd also be above the limit deduct the traditional IRA contributions, correct? And does that mean that technically the traditional contributions that you are going to back door are done with after tax money?
This is why the Backdoor Roth IRA doesn’t trigger any additional tax beyond what you already paid on that money.
***Important caveat***
This is true as long as you don’t have any other T-IRA, rollover IRA, SEP IRA, etc money that would trigger the pro-rata rule. Google for more info if you’ve never heard of that before attempting this.
You want to be able to answer $0 to the question on Form 8606 that asks: What was the balance of all your T-IRA type accounts on December 31st of the tax year in question.
02-15-2020, 10:10 AM
#136
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Joined APC: Apr 2016
Position: Looking left
Posts: 3,251
Originally Posted by LeineLodge
Yes. All correct.
This is why the Backdoor Roth IRA doesn’t trigger any additional tax beyond what you already paid on that money.
***Important caveat***
This is true as long as you don’t have any other T-IRA, rollover IRA, SEP IRA, etc money that would trigger the pro-rata rule. Google for more info if you’ve never heard of that before attempting this.
You want to be able to answer $0 to the question on Form 8606 that asks: What was the balance of all your T-IRA type accounts on December 31st of the tax year in question.
This is why the Backdoor Roth IRA doesn’t trigger any additional tax beyond what you already paid on that money.
***Important caveat***
This is true as long as you don’t have any other T-IRA, rollover IRA, SEP IRA, etc money that would trigger the pro-rata rule. Google for more info if you’ve never heard of that before attempting this.
You want to be able to answer $0 to the question on Form 8606 that asks: What was the balance of all your T-IRA type accounts on December 31st of the tax year in question.
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