After-Tax 401(k) In-service Rollover | Ed Slott and Company, LLC

After-Tax 401(k) In-service Rollover


We have a client that has an after tax 401(k) that he contributes to every year and the plan allows for in-service distributions from the plan. Are there any pit falls that we should be concerned about when rolling his after-tax 401(k) contributions out of the 401(k) plan to his Roth IRA account while he is still working with the company? We would roll any gains on his after-tax contributions to a pretax IRA.

No particular pitfalls. If the plan allows frequent enough rollovers, the earnings buildup should be modest enough to simply pay the taxes on the small amount of earnings and simplify the direct rollover process. A split rollover can be done, but pre tax TIRA money will impair the tax free benefits of a back door Roth. Of course, the total contributions allowed to be made to a 401k after tax account are much larger than the IRA contribution limit, so perhaps client does not need to worry about a regular back door Roth.


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