Mark Kohler answers Amy's question about after-tax 401(k) contributions. The total plan limit is $57,000 yearly, with employee deferrals capped at $19,500 (plus $6,500 catch-up at 50+). Large employer matches can eat up after-tax space, so Kohler suggests a mega-backdoor Roth conversion as an alternative.
Chapters
Okay. So she said, is there an after tax contribution I can make in my 401k even if my employer made up all the difference? Okay, let's do some math here because. And her name's Amy. Yes. Okay, Amy. Now everybody, I'm going to do hard questions and easy questions. I'm here for you. How much can Amy put in her 401k for last year? Okay, let's say that $57,000. Okay, that's the max. Now how much of that can be a deferral from her? Now it could be $19,500 if she's under age 50 or if you're over age 50. You go to your handy dandy calendar and you look at this and go, oh, this is pretty cool. I can put a catch up provision of $6,500 more if I'm 50 or older. So she would be able to put in $26,000 if she was 50 or older. Okay, now what's the difference? Let's assume Amy is put in the 19:5. So 57,000 minus 19:5. Okay, so that's 37,500. Now Amy says her employer put all of that in for her. Now I'll say, Amy, that's a pretty darn rare, I don't know if I've ever seen that. That's a huge contribution. You must be a vice president at Microsoft or something because here's the thing, most 401k plans may put in 5% of your salary and to make up 37 grand, salary would have to be around 800,000. I don't know, maybe it was a profit sharing plan, something like that. But if your employer already put in $37,500 and you put in 195 for a total of 57,000, you're done. You can't put any after tax contributions in, but you can go to home and do a Roth ira. So you can still do a backdoor or a front door Roth IRA plus the 57,000. I'm cool with that. But everybody out there, this 37,500 is typically something you're going to put in after the employer match. So let's say the employer puts in seven grand, 500, 7500, which sounds a little more realistic then the 30,000 you could put in and convert to a Roth on day two. Yep, you can do it all day long. People like, this is how the rich get richer. Yes. This is how they do it.
