Are there any tax implications for doing a mega backdoor roth rollover if I first convert the after-tax 401k contributions to Roth in my 401k account?

[Ry-123]

My employer recently changed 401k custodians to Fidelity and are offering after-tax contributions that can later be rolled over to roth IRA (essentially the mega-backdoor roth contribution). The problem is that I would like to transact the conversion to roth IRA monthly (right after each after-tax contribution), but it's fairly cumbersome (multiple phone calls) to be doing every month. They do offer automatic conversion to roth (within the 401k) on the after-tax contributions as well as after-tax withdaws after the conversion. My plan would be to set up the auto-conversion to roth and then periodically roll over those after-tax contributions (that are now roth) to my roth IRA. I'm just unsure if the "backdoor" can be used if the conversion is coming from after-tax funds that have not yet been converted to roth. Any pitfalls for doing the mega-backdoor with after-tax funds that have first been converted to roth in the 401k?

[macuser_22 · Accepted solution]

The so called "Backdoor Roth" does not apply.   Backdoor Roth's are done to make Roth *IRA* contributions when ones income prohibits a direct Roth contribution by first contributing  a non-deductible contribution to a Traditional *IRA* that has no restrictions and then converting that Traditional IRA to  a Roth IRA.

That has nothing to do with 401(k) contributions converted to a Roth 401(k) in plan rollover.   What and how much you can convert depends on the 401(k) plan rules - ask the 401(k) trustee.

Once in a Roth 401(k) then that can be rolled into a Roth IRA with no tax.   Whether you can roll it to a Roth IRA before retirement age again depends on the 401(k) plan rules for your particular plan.

[Ry-123]

Thank you for your reply.  Really appreciate it!  I understand the mechanism of the "backdoor roth".  I, however, was speaking about the so called "mega-backdoor roth" which utilizes the allowance to contribute after-tax to a 401k plan (if the plan allows it). These contributions are then converted and rolled over to a roth IRA which essentially allows for adding to a roth IRA beyond the annual direct contribution limit.

In my case, I would like to first convert these after-tax 401k contributions to roth (still in the 401k plan), and then at a later time (presumably with some gains) roll these over to my roth IRA. In your response you mention that there's no tax when rolling over from roth 401k to roth IRA, and can be done so as long as my plan allows for my roth 401k funds to be transferred (which they do), then there wouldn't be any tax implications (beyond the initial conversion from after-tax). So it appears what I'm planning on doing will work. Thank you again for your response.

[macuser_22]

A rollover is not a new contribution.   Converting your 401(k) to a Roth 401(k) is totally separate from rolling the Roth 401(k) to a Roth IRA.    Since both a Roth 401(k) and a Roth IRA are after-tax money then there are no tax consequences to a rollover.  

There is not much different between a Roth 401(k) and a Roth IRA other than a IRA might offer more investment choices.