Contributing to MBD as soon as pay hits or 1x/year?

Submitted by getonthemove t3_11dvosq in personalfinance

If I start making after-tax contributions, I read about 3 options:

  1. Leaving it in a Roth 401K
  2. Move each contribution from 401K to MBD Roth IRA (i.e. many calls to brokerage firm)
  3. Wait till EOY to move accrued contributions (just 1 call)

Given that I don't mind calling however many times, and that I'm leaning towards option 2 or 3, does which option I pick really make a difference?

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antoniosrevenge t1_jab4oyl wrote

You'll owe income taxes on any growth on the after-tax contributions when they're converted to Roth - converting it immediately after contribution is preferred

My plan requires you to mail or fax a form, and I only make after-tax contributions in the back half of the year, so I typically only do the conversion 2-3 times a year a few months apart to avoid the hassle, gains are typically minimal for that short of a time frame (though immediate conversion with zero gains is more ideal)

Confused about your option 1 though - are you referring to leaving it in the after-tax 401k, or are you saying auto converting it to Roth 401k?

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Left-Landscape-3890 t1_jab54tf wrote

Roth 401k and after tax are actually 2 different things. Roth 401k is after tax money but not technically categorized as such. If you wanna do MBD, you need to contribute to "after tax", not "Roth 401k." At least for me with Fidelity and my workplace plan. Ymmv

I convert every 10k ish from after tax 401k to my Fidelity Roth ira. I'm calling in to do that about every 2 months now. Not that bad. I just changed my contributions to a stable value fund so there won't be any gains to pay tax on for the conversion. Yeah I'm missing out on a bit of gains, but 2 months isn't much anyway on working up to 10k

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