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?
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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.
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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"....
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Originally posted by HogHunter34 View PostIsn’t the post-tax the Roth portion?
I’ve never heard of pre, post tax & then Roth as a third option
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Originally posted by Shane View PostYou 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.Last edited by JonBoy; 07-22-2021, 02:50 PM.
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Originally posted by HogHunter34 View PostInteresting. 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
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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.
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Originally posted by boy wonder View PostPre-tax makes a lot of sense, IF you will be in a lower tax bracket in retirement.
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.
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