20 Comments
Jun 3Liked by Andre Nader

This is such a valuable piece. I had no idea this existed until you started posting about it. My wife works for EA, and it looks like they allow it. So many years of missed massive Roth contributions...sigh. Thank you.

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Jun 3Liked by Andre Nader

Great stuff, thanks! Just shared inside Meta.

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Jun 3Liked by Andre Nader

Amazon has the same option as Meta via Fidelity to automatically convert to Roth without needing to call. They have the same " ROTH IN PLAN CONVERSION " section at the bottom with an option of "Convert After-tax to Roth".

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author

Awesome! I don't know why Fidelity doesn't have this enabled for all their accounts. I don't get the incentives they have to not make it easy. I am sure there is some hidden regulatory lift that I am unaware of that causes the difference.

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Hi Andre - This is super helpful! Quick question. If I only have the ability to put in $23K for the 401K, would you suggest putting it into the traditional pre-tax 401K or Roth 401K? Leaning towards the later since not having the deduction won't change my tax bracket and I can let it grow without having to pay any future tax on the gains.

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There are lots of different factors at play when deciding the split on pre/roth. If I was in a state without income taxes and early career leaning into Roth 401k wouldn't be a bad idea. It probably would end up as wash one way or the other. Not worth overthinking too much. Again, lots of variables.

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If I start a business that barely makes any money (ex $3500 the first year) can I still open a Solo 401K that allows after-tax contributions and max out after-tax contributions 69K ? Even though the business only made $3500, I can still put 69K into the after-tax Solo 401K ??? If so, I'm about to open up a business :)

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You can only contribute the after tax proceeds (or something to that effect). I only contribute after I have started my taxes so I know how much I can contribute. I wish you could just blast in $69k.

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Jul 1Liked by Andre Nader

That's such a bummer. My other deep dive right now is about my next house hack. I want to provide 'substantial services' to long-term tenants to get that income reported on schedule C and hopefully unlock all my passive real estate losses and make them active lol. I'm like 7 hours into that right now haha

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author

You are an hour away from getting sucked into the short term rental loophole gurus.

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Jul 1Liked by Andre Nader

Way past that lol. I'm going to try and pay for some RE tax consultations with the right CPA's soon. But if I can just have one STR bedroom in my home, and then have all the rest of my real estate recharacterized as active lol.... suddenly it's worth it. I geek out on this stuff. Thanks for responding! And great article

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Can you please also talk about the withdraw of Roth IRA? That part is always confusing.

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author

Can you explain what you are referring to when you mention “withdraw”?

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Thanks for the fast response!

I'm referring to the withdraw of contributions. A couple of questions in different scenarios:

1. Can I withdraw the contributions from a Roth 401K or Roth IRA at any time? What are the any rules/limitations I need to follow?

2. In the case I convert from after-tax 401K to Roth IRA every quarter, for example 10K originally contributions + 2K growth over the quarter, what would be considered as the contribution vs. growth in the Roth IRA account? Would the contribution be still 10K, or would it be everything I converted (10K + 2K after tax) ?

Thank you!

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author

1. My understanding is that you can withdraw Roth Contributions (401k or IRA) at anytime tax and penalty free. There is a separate 5 year wait that would apply to Roth Conversions (applies to normal backdoor roth contributions).

2. The contribution would be the $10k (the conversion is a separate process that doesn't count towards any limits). If the balance grew from $10k to $12k prior to the conversion, the $2k growth would be taxed.

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Hey Andre - I had started Mega backdoor after your post at Meta several years ago I think. The question I have always had is where would I see the breakdown of the % after tax on Fidelity? Does this basically get reflected in the overall 401k contribution? And, therfore is the idea that any capital gains on this would be tax free?

Thanks for the informative write-ups and recommendations!

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author

Fidelity doesn't make it simple!

Log into Netbenefits. Click into your company account.

You should see a module that says "Sources". At the bottom there is a "Show Details" button. If you click on that, you should be able to see everything broken out.

Two options to make it easier in the future: You could change the investments for just the After-Tax funds. So you know all investments of a certain type were Roth in nature. Or you can also roll the funds into a separate Roth IRA. This latter is what I have done, just so I could easily know balances by account type at the account level vs needing to dig deeper.

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I see. Thanks Andre!

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Ok, so just starting out, so need a step back of clarity on total retirement contributions.

Order of contributions:

1. Max out 401k

*401K - $11.5K (minimum of company match)

*401K - another $11.5K not matched by company

*$34K via MBDR

2. Whatever contributions/investments you do after.

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author
Jun 3·edited Jun 3Author

Assuming Meta/Google based on the match. If you needed to prioritize, You are thinking about it in the same way I think about it.

1. Get the Full Match. 2. Max out the rest of the pre-tax limit. 3. Then MBDR. After that I would do 4. Back Door Roth, 5. Taxable brokerage. All of this can vary by individual circumstances, goals, and all that fun stuff.

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