ROTH IRA Question

[boy wonder]

I am having a post-tax account "back door'd" into an existing ROTH IRA in the same 401K account. My assumption is, I will only have to pay the taxes on the growth and the 10% penalty (<59.5 years old) does not apply. Is my assumption correct?

[BrianL]

You mean you are moving a PRE tax account (401k?) into a Post tax Roth(IRA OR 401K)?

[Shane]

No 10% penalty on Roth conversions. Roth IRAs don't exist inside a 401k plan. You could have a Roth option for your 401k though. Roth 401k does not have the income limit for eligibility that a Roth IRA has, so you shouldn't have to back door into the Roth 401k. It's not clear what you have and are trying to accomplish. Most specifics would help.

[6.5 shooter]

I’m not sure what your really asking. If you are moving from a 401 to a Roth, you will have to pay tax on the full amount you convert to Roth.

[boy wonder]

In my 401K, I have pre-tax, post-tax and ROTH accounts. I moved my post-tax account balance into my ROTH and I'm still contributing to the post-tax, but it is then moved to the ROTH. And, I'm contributing the max amount to the ROTH aside from the post-tax movement. Sorry, I'm not a "financial guy"....

[HogHunter34]

Isn’t the post-tax the Roth portion?
I’ve never heard of pre, post tax & then Roth as a third option

[boy wonder]

Isn’t the post-tax the Roth portion?
I’ve never heard of pre, post tax & then Roth as a third option

Yes, within my 401K I have these options, not sure about any other 401K. I did pre-tax for years, then did some post-tax to put more than the pre-tax limit. Then, along came ROTH .

[Shane]

You won't owe penalty on the conversion. You already paid tax on your after-tax contributions, but you've not paid tax on the earnings on those contributions yet. You'll owe tax on that when you convert it to Roth.

[boy wonder]

You won't owe penalty on the conversion. You already paid tax on your after-tax contributions, but you've not paid tax on the earnings on those contributions yet. You'll owe tax on that when you convert it to Roth.

Thank you!

[JonBoy]

You won't owe penalty on the conversion. You already paid tax on your after-tax contributions, but you've not paid tax on the earnings on those contributions yet. You'll owe tax on that when you convert it to Roth.

This. We contribute the max Roth amount to a standard IRA and convert per our FA's advice. No penalty, just tax on the growth (if any)

[HogHunter34]

Interesting. I have a 401k with my current employer that has the tax deferred option as well as Roth option. I split mine across both but more toward tax deferred to help offset tax rate

[BrianL]

Interesting. I have a 401k with my current employer that has the tax deferred option as well as Roth option. I split mine across both but more toward tax deferred to help offset tax rate

I'm adding a Roth to our retirement plan at work, and wished I had done it 20 years ago... I would STRONGLY suggest looking at max the Roth, and put any employer match to the regular.

[boy wonder]

Pre-tax makes a lot of sense, IF you will be in a lower tax bracket in retirement.

[TeamAmerica]

What i understand is that a number of employers now offer multiple options in their 401k:

1. Pretax (normal) $19,500 limit
2. Post tax - $58,000 limit
3. Roth - $19,500 limit

The "strategy" is to contribute more money into Post tax 401k which has a higher limit, then backdoor this amount into the Roth which has a lower limit. Add on the benefit that there is no income limitations for roth 401k like their is for IRAs (for those who make "too much" money!).

To the OPs question, there is no penalty for converting anything to Roth.

[TeamAmerica]

Pre-tax makes a lot of sense, IF you will be in a lower tax bracket in retirement.

my goal in retirement is to have several source of income so i can manage my tax bracket within reason. i fully expect to have as much or more income in retirement but be in a lower bracket.

now who knows what the income tax rates will be when i retire. again can't predict that so just trying to have multiple sources of income.