Maxing out Mega Backdoor ROTH in your 30's and investing it in the S&P500 index will make you rich when you turn 50. This video is so factually correct and concise. Way to go!!
Thanks for your video, super helpful! One thing I feel confused, you have three options from the manage contribution page, pre-tax, Roth, and after-tax. You set pre-tax and Roth to 0, why Roth is 0 here? I thought Roth is the same with after-tax? What's the exact difference between Roth and after-tax option here? Thanks a lot!
Awesome and super useful video..! Just one question, how do you manage not exceeding the annual contribution and avoid not eating into employer match contributions?
I do have "After-Tax" election option in my 401k plan and my plan allow in-plan conversion. But I don't see "Daily Roth In-Plan Conversion" option OR a dropdown to select a setting in my account. When I called Fidility they said they can enable the conversion and they did it. Still I don't see that dropdown. I haven't started but, Should I worry about this or can I start the contributions? Your help will be highly appreciated.
Does the fidelity daily conversion move the after-tax balance to a Roth 401K balance or does it automatically convert it to a Roth IRA? Does any pre-tax balance get subject a pro-rata rule like with the “normal” back door Roth conversion with IRAs? Thank you!
In plan conversion moves money from after tax 401k to Roth 401K. Pro rata rule doesn't apply to 401K unless you convert the money to Roth IRA through in service distribution.
front loading is bad with company match. each company has different rules, some you loose out the match entirely, while other ones 'true up' the match next year - which is bad if you leave the company as you wont get that match.
Thanks for the video, i maxed out pretax and after tax with same day Roth in plan conversion as well. But I didn’t do the front loading thing, for more consistent net take home pay. Hopefully BBB provisions on mega backdoor Roth never passes!
@@YingcredibleTips front loading also depends on if your company will match based on total contribution vs per paycheck. My company will not honor the total contribution match, so if I were to front load I wouldn't receive the match for the second half of the year. It seems like your company does allow that though, which is amazing!
My company plan seems doesn't have the "roth in-plan conversion", can you share the link/resource for the other method "in service distribution"? to roll the after-tax to roth IRA (more manually)? thank you a ton!
If I don't have daily roth in plan conversion under contributions does that mean my company doesn't offer the mega backdoor roth? I thought my company did
What is your profession and what company do you work for that allows you to convert your 401k into a Roth? Ive tried to find employers that allow this in their retirement plans but have had no luck so far.
You mentioned you maxed out your Pre-Tax before and then moved to After-Tax. Why not max out the 19,500 in the Roth, then continue adding to the Roth with After-Tax automatic conversion. That way you have all Roth. I have similar options and am not sure what to do. Thanks, great video.
I always max out pre-tax first because my company matches 50% up to the maximum ($19500) and it effectively reduces my taxable income so it's a no brainer for me. Questions you need to consider are 1) if your company offers matching and 2) whether you want to pay tax now or later (aka. when you retire if you imagine your tax rate being in a lower or higher bucket).
@@YingcredibleTips My company offers almost the same as yours, but my question is, why are you hoping to make less money, so being in a lower tax bracket at retirement, why is it a no grainer for you, if you have the option to have the 19500 as Roth and the rest as After-tax, also converted to Roth, that would mean you won't have to worry at all about any taxes in the future. I'm trying to make sense why choosing the pre-tax is better in your opinion for the 19500 part.
@@dc5 hi David, great to hear that your company has matching! How's your current marginal tax rate looking? It's a no brainer for me because my marginal tax rate is very high right now and I imagine myself being in a lower tax bracket when I retire. It's true that doing all Roth will bring you a peace of mine (not have to worry about tax in the future) but you can use those tax savings to invest which will give you compounding interest over the years. That being said, if you are in a very low tax bucket right now, doing Roth might be a better option.
@@YingcredibleTips Yeah that's exactly why I'm not sure what to do.. because I'm also in the higher end. Though I also hope to be like that or better in retirement 😁
I see! Good for you. One concept I've been advocating for my viewers is to have diversification in your 401K composition to de-risk (similar to stock diversification) so I still think it's a good idea to have some in pre-tax and and some in roth instead of all-in in one since future can be unpredictable. But it's completely up to you; regardless, this is a good problem to have 🙂
@@grzegorzszul4195 I think it stays in the same account, it allocates separately as after tax dollars. I would double check with your 401k provider though.
Thank you for the tutorial, I have a specific question. I contribute max $19,500 at an employer's 401K plan. I also have my S-corp with a solo 401K plan, I would like to max out the After Tax $38,000 (correct me if I am wrong) allowed by IRS in my S-corp's solo 401K, my solo 401K plan can do After Tax contribution and In Service distribution. My question is : Pre Tax contribution can not be more than the salary earned, is there such a limit regarding After Tax contribution ?
Hi Min, sorry I'm not an expert in the S-corp or solo 401K since I don't have one so I don't know the answer to your question. If I end up getting solo 401K later on, I might do an updated video!
Question, trying to roll over my after tax contributions to Roth IRA but I will be suspended for 3 months from making contributions following the rollover bc it’s employer sponsored, does it make sense to do the rollover in beginning or end of the year? What do ppl think?
Didn't know about the suspension! Imo it doesn't really matter (I'm usually not a big fan of timing) as long as your funds are invested before and after the rollover.
Hi Ying, when I select the roth inplan conversion does it automatically roll over to the Roth IRA account I have set up in Fidelity? What If i have a roth IRA with another brokerage. Do i need to open one up with Fidelity?
In plan conversion only works with the same provider from after tax 401k to roth 401k. If you want to do after tax 401k to Roth IRA, you need to do in service distribution (see link in my description)
Hello Ying, this is an informative video for step-by-step instructions. Thanks a lot. Basically, I have the same question Mason have. I did the exact operation "Convert after-tax contributions". After 1 pay period, I notice that thses roth (after_tax) contribution goes to my main 401k account. That mean, I have a mixed 401k account now with both before- and after- money. Is this expected? I thought it should go to a dedicated roth IRA account. -------------------- I revisited again. Looks like my current 401k account has both pre_tax and after_tax contribution within one account. I suppose I should be able to convery it to real roth IRA in future. So that's fine.
I thought Fidelity would have two sub-account under 401K: a pre-tax and a roth, but as you mentioned, it seems that this is NOT the case; they instead are in the same 401K account as a mixture. So how do you know a few years later how much money you have accrued in your roth 401K?
How would I do this as a solo 401k? I am confused because everyone suggests using random companies for the 401k but I'd prefer to use fidelity, td or a known safe company. Any idea?
Paul...try Vanguard, very excellent company for setting up individual 401k, they invest responsibly, have a proven track record of getting consistent, reliable gains to their clients portfolios! Another alternative...Charles Schwab, very pricey though!
What do you think about taking a distribution of your after tax contributions and sending it to a Roth IRA ? I want to do this so I have the ability to invest in cryptocurrency and still keep taxes to a min. (roth)
Yes distributing it to Roth IRA will give you more flexibilities in terms of investment options. But as I said the process is manual so you probably need to do some work. Also be aware of the risk of crypto.
NOTE: The contribution limits have changed for 2024. Mega Backdoor: $46,000. Regular Backdoor: $7,000
Maxing out Mega Backdoor ROTH in your 30's and investing it in the S&P500 index will make you rich when you turn 50. This video is so factually correct and concise. Way to go!!
Thanks for your video, super helpful! One thing I feel confused, you have three options from the manage contribution page, pre-tax, Roth, and after-tax. You set pre-tax and Roth to 0, why Roth is 0 here? I thought Roth is the same with after-tax? What's the exact difference between Roth and after-tax option here? Thanks a lot!
Excellent content! Finding something like this is a best case scenario when trying to go through personal finance chores. Keep it up!
Awesome and super useful video..! Just one question, how do you manage not exceeding the annual contribution and avoid not eating into employer match contributions?
I do have "After-Tax" election option in my 401k plan and my plan allow in-plan conversion. But I don't see "Daily Roth In-Plan Conversion" option OR a dropdown to select a setting in my account. When I called Fidility they said they can enable the conversion and they did it. Still I don't see that dropdown. I haven't started but, Should I worry about this or can I start the contributions? Your help will be highly appreciated.
Can this question be answered? I have the same issue. Thanks!
Great video and thanks for the tips at the end with fund comparisons!
Thanks!!! Very good information
Can this be combined on top of the IRA to Roth backdoor?
Thumbs up! I have been watching a lot of videos on this and you did a great job!
😇
I'm so glad!
Do you have to wait until your 401k is maxed out before doing after tax contributions? Or can you do them at the same time?
Very easy to follow! When you front load do you miss out on the company's match?
Thank you! I don't but some might do depending on company's policy.
To the point. Great video!
Front loading. Not all companies let you continue to get match if you finish filling you 401K.
Does the fidelity daily conversion move the after-tax balance to a Roth 401K balance or does it automatically convert it to a Roth IRA?
Does any pre-tax balance get subject a pro-rata rule like with the “normal” back door Roth conversion with IRAs?
Thank you!
In plan conversion moves money from after tax 401k to Roth 401K. Pro rata rule doesn't apply to 401K unless you convert the money to Roth IRA through in service distribution.
@@YingcredibleTips thank you for clarifying! Hopefully the rules don’t change soon! :)
front loading is bad with company match. each company has different rules, some you loose out the match entirely, while other ones 'true up' the match next year - which is bad if you leave the company as you wont get that match.
Thanks for the video, i maxed out pretax and after tax with same day Roth in plan conversion as well. But I didn’t do the front loading thing, for more consistent net take home pay. Hopefully BBB provisions on mega backdoor Roth never passes!
Nice work!
@@YingcredibleTips front loading also depends on if your company will match based on total contribution vs per paycheck. My company will not honor the total contribution match, so if I were to front load I wouldn't receive the match for the second half of the year. It seems like your company does allow that though, which is amazing!
Thank you so much !!!
this is great thank you!
You're very welcome!
My company plan seems doesn't have the "roth in-plan conversion", can you share the link/resource for the other method "in service distribution"? to roll the after-tax to roth IRA (more manually)? thank you a ton!
Yes, it's inside the description box. RE: Mega backdoor via in service distribution
If I don't have daily roth in plan conversion under contributions does that mean my company doesn't offer the mega backdoor roth? I thought my company did
What is your profession and what company do you work for that allows you to convert your 401k into a Roth? Ive tried to find employers that allow this in their retirement plans but have had no luck so far.
You mentioned you maxed out your Pre-Tax before and then moved to After-Tax. Why not max out the 19,500 in the Roth, then continue adding to the Roth with After-Tax automatic conversion. That way you have all Roth. I have similar options and am not sure what to do. Thanks, great video.
I always max out pre-tax first because my company matches 50% up to the maximum ($19500) and it effectively reduces my taxable income so it's a no brainer for me. Questions you need to consider are 1) if your company offers matching and 2) whether you want to pay tax now or later (aka. when you retire if you imagine your tax rate being in a lower or higher bucket).
@@YingcredibleTips My company offers almost the same as yours, but my question is, why are you hoping to make less money, so being in a lower tax bracket at retirement, why is it a no grainer for you, if you have the option to have the 19500 as Roth and the rest as After-tax, also converted to Roth, that would mean you won't have to worry at all about any taxes in the future. I'm trying to make sense why choosing the pre-tax is better in your opinion for the 19500 part.
@@dc5 hi David, great to hear that your company has matching! How's your current marginal tax rate looking? It's a no brainer for me because my marginal tax rate is very high right now and I imagine myself being in a lower tax bracket when I retire. It's true that doing all Roth will bring you a peace of mine (not have to worry about tax in the future) but you can use those tax savings to invest which will give you compounding interest over the years. That being said, if you are in a very low tax bucket right now, doing Roth might be a better option.
@@YingcredibleTips Yeah that's exactly why I'm not sure what to do.. because I'm also in the higher end. Though I also hope to be like that or better in retirement 😁
I see! Good for you. One concept I've been advocating for my viewers is to have diversification in your 401K composition to de-risk (similar to stock diversification) so I still think it's a good idea to have some in pre-tax and and some in roth instead of all-in in one since future can be unpredictable. But it's completely up to you; regardless, this is a good problem to have 🙂
Hi, if I am doing this for the first time, will a Roth account automatically be made for you? I have no accounts on Fidelity except for my 401K.
I have the same question. Have you tried it already?
@@grzegorzszul4195 I think it stays in the same account, it allocates separately as after tax dollars. I would double check with your 401k provider though.
That's right. Same account - you don't need to open a new one assuming you are doing it with your employer
Thank you for the tutorial, I have a specific question. I contribute max $19,500 at an employer's 401K plan. I also have my S-corp with a solo 401K plan, I would like to max out the After Tax $38,000 (correct me if I am wrong) allowed by IRS in my S-corp's solo 401K, my solo 401K plan can do After Tax contribution and In Service distribution. My question is : Pre Tax contribution can not be more than the salary earned, is there such a limit regarding After Tax contribution ?
Hi Min, sorry I'm not an expert in the S-corp or solo 401K since I don't have one so I don't know the answer to your question. If I end up getting solo 401K later on, I might do an updated video!
@@YingcredibleTips same question, thank you Ying
Iam first comment
Nice sharing
Question, trying to roll over my after tax contributions to Roth IRA but I will be suspended for 3 months from making contributions following the rollover bc it’s employer sponsored, does it make sense to do the rollover in beginning or end of the year? What do ppl think?
Didn't know about the suspension! Imo it doesn't really matter (I'm usually not a big fan of timing) as long as your funds are invested before and after the rollover.
@@YingcredibleTips it’s probably specific to my company but that makes sense thank you for replying
Hi Ying, when I select the roth inplan conversion does it automatically roll over to the Roth IRA account I have set up in Fidelity? What If i have a roth IRA with another brokerage. Do i need to open one up with Fidelity?
In plan conversion only works with the same provider from after tax 401k to roth 401k. If you want to do after tax 401k to Roth IRA, you need to do in service distribution (see link in my description)
what's total market fund?
I don’t have the daily Roth in plan conversion option.. can I still call them to set this up?
no, your employer needs to allow it first
Hello Ying, this is an informative video for step-by-step instructions. Thanks a lot. Basically, I have the same question Mason have. I did the exact operation "Convert after-tax contributions". After 1 pay period, I notice that thses roth (after_tax) contribution goes to my main 401k account. That mean, I have a mixed 401k account now with both before- and after- money. Is this expected? I thought it should go to a dedicated roth IRA account.
--------------------
I revisited again. Looks like my current 401k account has both pre_tax and after_tax contribution within one account. I suppose I should be able to convery it to real roth IRA in future. So that's fine.
Great. Glad you figured it out!
I thought Fidelity would have two sub-account under 401K: a pre-tax and a roth, but as you mentioned, it seems that this is NOT the case; they instead are in the same 401K account as a mixture. So how do you know a few years later how much money you have accrued in your roth 401K?
How would I do this as a solo 401k? I am confused because everyone suggests using random companies for the 401k but I'd prefer to use fidelity, td or a known safe company. Any idea?
I have little knowledge right now about solo 401k sorry about that!
Paul...try Vanguard, very excellent company for setting up individual 401k, they invest responsibly, have a proven track record of getting consistent, reliable gains to their clients portfolios! Another alternative...Charles Schwab, very pricey though!
What do you think about taking a distribution of your after tax contributions and sending it to a Roth IRA ? I want to do this so I have the ability to invest in cryptocurrency and still keep taxes to a min. (roth)
Yes distributing it to Roth IRA will give you more flexibilities in terms of investment options. But as I said the process is manual so you probably need to do some work. Also be aware of the risk of crypto.
yes, invest all into crpto!
Who's baby is crying in the back?