So you could always save $5.5k/yr individually and $17.5k/yr through your company 401k, but now you can save an *additional* $34.5k/yr through your company 401k via after-tax contributions later converted penalty free to a Roth IRA. The law just changed allowing this! It seems that not all 401k plans support it, however.
Now there’s an even bigger-dollar Roth gambit, thanks to new, surprisingly permissive Internal Revenue Service rules governing the rollover of aftertax 401(k) contributions into Roth IRAs.
As a result, some workers may be able to funnel as much as $34,500 extra a year into Roth IRAs
My take is that anyone in the accumulation phase and saving more than $20k/yr should probably be looking into this...
Great point, but you can essentially put an unlimited amount into an IRA via self-directed loans. The simple example is making a loan to a non-prohibited, trusted party, say a brother or sister, via prosper and you can loan them any amount of money and charge them 30% per year on the money. Nobody asks or tracks where the money used to pay the loan comes from.
There are other ways to do it as well, for example making a loan to a trusted, non-prohibited party and having them repay you in gold coins, which are strictly speaking legal tender for the face value , so you could lend $100 and get repaid in eagles worth 2k-2500 or so and then turn around and sell it to a dealer. No different than getting paid back with a 10k bill for a 10k loan if you can find one, which are generally worth 70-100k or so from collectors.
I personally was very pleased with this IRS clarification on the matter and immediately updated my 401K contributions to take full advantage of this.
There are a few compelling reasons for many ERE's to do this, mostly centered around impact to their MAGI, reduced investment fees if excellent choices are available in 401K, reduced dependency on current capital gains tax bracket law, and increased ERE spending flexibility with less concern due to conversion time constraints, ultimately resulting in a smaller taxable ERE bridge needed in the early years.
Unfortunately I suspect many do not have as favorable an opportunity to gain from this IRS endorsement as many things must line up just right to see maximum benefit.
This is interesting, I had not seen it. I have been avoiding after-tax 401k contributions, and even Roth 401k contributions because of my high marginal bracket and expected low income/lower tax rates in ER. I do do the nondeductible IRA backdoor roth. I like having some money outside tax sheltered accounts for easy access while I'm younger than 59.5, but this is worth investigating.
I'm trying to get my head around this. DH maxes out his 401K with pretax and aftertax money because his company matches both. If his plan will allow the rollovers, it almost seems too good to be true. It also seems like a particularly good deal if you're middle-aged and are waiting until 55 so you can retire with all of the tax advantages. You wouldn't have to wait if you could rollover enough money.
