I feel your pain. Any time the government removes flexibility in retirement plans then I consider it a negative.

This doesn't impact me, but I get it.

This loosely reminds me of an incrementalist move towards Biden's initial 401k reform plan where he was going to outright remove pre-tax deductions (which would have harmed higher income earners) by changing to a credit.

Also, I think this was passed in the Secure 2.0 Act under Biden in 2022, so this was likely a compromise position by Republicans to get some other more beneficial things in place.

EliteZags said:

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TXTransplant said:

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I got an email from my company about this change about a month ago. I'm still a couple years away from being eligible for catch up contributions, but I currently max my pre-tax 401k contributions and put another $14k after tax into a mega backdoor Roth.

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just curious if someone in this position would ever consider just maxing out the mega backdoor (even if it meant leaving near zero take home) and just withdrawing from their taxable investments for living expenses

this would essentially equate to getting to convert your taxable holdings to Roth, though suppose would be more attractive if you had cash equivalent holdings there or assets without much capital gains to realize

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My plan won't let me contribute more than 40% of my salary (excluding bonus) in any retirement account.

Coincidentally 40% of my current salary is roughly the combined employee/employer limit (with no catch up contributions).

Foamcows said:

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curious, but are you assuming the government wont continue to keep raising taxes? and thats what you are using in your decision on to go tax deferred or pre-tax? seems like a risky assumption.

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People have been saying taxes will go up for decades. They won't, or if they do they will raise them on workers not retired people

Congress raising taxes is a great way to lose their job and promising to lower taxes is a great way to get elected. Old people vote and young people don't so they will keep taxes low for the people who actually vote.

Ragoo said:

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1) these are catch-up contributions. If you are relying on catching up post 50 I'm sorry but you made mistakes 25 years ago
2) the arrival says in 2026 if you make over $145k your catchup will typically need to be in a Roth 401k. The use of the word typically is vague. Additionally, is this just the catch up portion?

Me thinks you are making a huge mountain of a tiny mole hill.

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Some look at this as a benefit. It allows a high income earner to do Roth contributions when they otherwise wouldn't qualify. A good deal if you already have a disproportionate amount of assets in tax deferred accounts

This can help to diversify away from tax deferred accounts that will have RMD's in the future. RMDs in a down market can be a negative future impact

TXTransplant said:

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This whole discussion reminded me that I needed to check/increase my pre-tax contribution to make sure I hit the 2026 limit ($24,500). I had to go up a percent to hit it (assuming no raise, but I won't know that for a few months).

In the process I saw what the catch up contributions are for 50+ and 60-63. Wow. I hadn't paid much attention since I'm not there, yet, but $8k and $11,250 is pretty significant. I was thinking it was only a fraction of that.

Just out of curiosity, what's the catch up if you are over age 63? Not that I'm planning to work that long, I just find it interesting that's the age where the catch up limits stop specifying a number.

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It goes back to the over 50 catch up rate so $8k this year.

Not all 401k plans allow Roth conversions or mega backdoor roths correct? I looked into it a few years ago and don't think mine does. So isn't this a big deal if your 401k doesn't have a Roth option?

I do a backdoor Roth for my IRA but that's the only Roth I do.

mavsfan4ever said:

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Not all 401k plans allow Roth conversions or mega backdoor roths correct? I looked into it a few years ago and don't think mine does. So isn't this a big deal if your 401k doesn't have a Roth option?

I do a backdoor Roth for my IRA but that's the only Roth I do.

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Correct on first question. Neither of my recent employers offered mega backdoor Roth which was highly annoying. One was a Fortune 250 and the other was a startup.

Right so for people in that situation, this new rule just decreases the amount of 401k contributions by 8,500 if those people are over 50. I see that as a pretty big deal.

I'm not 50 yet and have a while to go but would definitely use the catch up provision, because why not? And I'm currently maxing 401k, HSA and do a backdoor Roth for IRA. So it's effectively just taking 8,500 in retirement contributions away. Not sure why all the snarky posts are directed to the OP.

If your employer doesn't offer a Roth 401K option you will not be allowed to do a catch up contribution. That's a big deal. My employer did not offer a Roth when I worked and today my IRA account size has doubled in 6 years, meaning my kids get to navigate the 10 year withdrawal rules. Now that's my fault by not converting when I retired but that was a big hit I chose to avoid. In retrospect that was a bad idea, but in retrospect who really expected the market to be this good? My account has doubled but so has my tax bill.

I thought there's a difference in a plan not offering a ROTH option and not offering the ROTH Conversion or Mega Backdoor ROTH options.

But in discussion there always seems to be a lot of that gets tossed around interchangeably.

mavsfan4ever said:

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Not all 401k plans allow Roth conversions or mega backdoor roths correct? I looked into it a few years ago and don't think mine does. So isn't this a big deal if your 401k doesn't have a Roth option?

I do a backdoor Roth for my IRA but that's the only Roth I do.

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I don't believe you have to do a mega backdoor Roth under these new rules. You just have to put the catch up contributions in a regular Roth 401k. So you lose the tax deduction because Roth is after tax, but you can still contribute. Basically, some of your 401k will be pre-tax and some will be after-tax.

Are there some employers who don't even offer a "regular" Roth 401k?

It is true that not all employers offer the mega backdoor Roth (because that requires an in-plan withdrawal/conversion). But for those of us already doing the mega backdoor Roth, that's just where our catch up contributions will go. There is no point in making a "regular" Roth 401k contribution.

The biggest difference is a mega backdoor Roth allows you to put away as much as $72k per year total (employee+employer). If you don't have the mega backdoor option, you are capped at $24,500 plus whatever catch up you are eligible for ($8k or $11250).

The mega backdoor Roth essentially lets you do catch up contributions at any age. I'm 47, and I'm already putting an extra $14k+ per year in my MBDR, on top of maxing out my pre-tax contribution of $24500.

The more I think about the new change, the more annoyed I am that they are forcing the catch up contributions to be post-tax. I was looking forward to the extra tax deduction/savings since by the time I start doing this, I will no longer have any dependents - so the increased pre-tax 401k contributions would sort of make up for that.

Kenneth_2003 said:

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I thought there's a difference in a plan not offering a ROTH option and not offering the ROTH Conversion or Mega Backdoor ROTH options.

But in discussion there always seems to be a lot of that gets tossed around interchangeably.

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If I understand your question, these are two different things.

My employer's had a 401k Roth contribution option in addition to the normal 401k contribution option.

Beyond that, they did not have the mega back door option so I was limited to the normal annual max limits regardless if I contributed to Roth 401k or traditional 401k.

You are correct. The Mega Backdoor is for "in addition" to contributions that are not pre-tax to begin with because you maxed out.

My plan is Safe Harbor, because it will fail testing. So we don't bar the Mega Backdoor Option.

My wife and I have made non-deductible IRA contributions, then converted to a Roth IRA for years. Over time it adds up.

Confused about this mega-backdoor deal.

Sorry not trying to hijack, but seems like we have the right players in the room for this. From a previous employer from 2021, I have about 600 in a typical 401k with Fidelity. It's done quite well in the last few years, as have most other accounts out there (unless you have a Yieldmax ETFs account :-/). Would that be eligible for a mega backdoor Roth? 50 in this October (damn that's scary).

Mega backdoor Roth is where you make an after tax contribution to your 401k and then the financial institution does an "in plan distribution" and converts the after tax contributions to a Roth. It may also be called an in-plan Roth conversion or in-service withdrawals of after tax contributions.

This strategy lets you contribute above and beyond the $24,500 IRS limit. The total employee/employer limit for 401k contributions is $72k. So, you can contribute more, it just has to be done via the in-plan conversion.

Not all employers allow this. You would need to call Fidelity and ask them 1) if it is allowed and 2) to set it up for your account. You may have to talk to several different people before you find the right one to help you.

Do NOT just start making after tax 401k contributions and expect they will go to a mega backdoor Roth. This isn't how it works.

You also wouldn't do this on an account that you are not actively contributing to via payroll deductions. My mega backdoor contributions are a percentage of my salary that goes to the same 401k account where I am also making pre-tax contributions. This is the account sponsored by my current employer. I'm pretty sure it's not applicable to accounts that are leftover from previous employment.

Thanks TXT. Sounds like just based on this, it's a no go

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You also wouldn't do this on an account that you are not actively contributing to via payroll deductions

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Like I did with a previous 401k, I could just move it to the same Schwab IRA and continue to drip QQQI, SPYI, GOF and GPIX. Or let it ride this year and see how it goes. I get this notice every time I log in

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Attention: You appear to be invested too aggressively. Fidelity has investment strategies to help you stay on track for retirement.

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texsn95 said:

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Thanks TXT. Sounds like just based on this, it's a no go

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You might can still do a ROTH conversion on your current account if Fidelity allows it. That is separate from a Mega Backdoor ROTH, but still gets money into your ROTH account.