Does your biglaw firm’s 401(k) plan allow for Mega Backdoor Roth contributions? [POLL] Forum

[Anonymous User]

Would love to get more data from folks in the V60-100 range as this appears to be less correlated to prestige/ppep/"NY-ness" than I expected

[Anonymous User]

Any information on Willkie?

Bump

[corgiterrier17]

Anybody know a good tutorial for how to do the mega backdoor roth with a Vanguard 401k? Google is turning up lots of articles talking about the fact that you CAN do it, but no no real step-by-step instructions on HOW to do it

I don’t have Vanguard. I have Schwab. These are my steps:

1. Call Schwab 401k phone number and tell them I want to do an in-service distribution of my after-tax 401K funds. They will email me a withdrawal form. (The form has an ISBN code at the bottom that is unique and can’t be reused, so I have to call Schwab each time I want to do this to get a new form).

2. Fill out form indicating the after-tax withdrawal. I elect for NO tax withholding. I direct the after-tax contributions to be distributed to my Schwab Roth IRA, and any earnings on those contributions to be distributed to my Schwab IRA.

3. After I submit the form, it usually takes 2-3 business days to be processed.

4. I file a form with my Schwab 401K account and Schwab IRA (these are two different websites, a 401K administrative website and the normal Schwab brokerage website) to transfer the amounts deposited in the IRA back to the 401K. This final step is not necessary for the Mega Backdoor Roth, but it IS necessary if you’re doing the ordinary Backdoor Roth (which I assume you are, if you’re doing a MBDR). As an alternative, you could just transfer this amount to the Roth IRA but you will pay income tax on it, which I prefer to minimize.

Hi there, my firm also allows the Mega Backdoor Roth IRA and uses Schwab. How much % did you allocate for each account (traditional 401(k), Roth 401(k), after-tax) in Schwab? Basically, I'm trying to max out all of my retirement accounts (401k, Roth, HSA, Mega Backdoor IRA). Since I'm already using Schwab, should I create the Roth IRA account in Schwab as well? One of the books I read recommended Vanguard for Roth IRA. Thanks so much!!!

[Anonymous User]

Apparently the new tax bill gets rid of the ability to do any form of backdoor Roth, just FYI. Obviously it hasn't passed yet.

[Anonymous User]

Anyone know about Allen & Overy?

[peoplearehungry]

Apparently the new tax bill gets rid of the ability to do any form of backdoor Roth, just FYI. Obviously it hasn't passed yet.

The latest version of the tax bill does not do away with the backdoor Roths. See here: https://www.asppa-net.org/news/browse-t ... ation-bill

[Jchance]

Good news but I knew that it wasn't going to pass.

[Anonymous User]

Can anyone speak to DLA or Willkie? Considering lateral offers at both and a couple other firms and not seeing anything on either; not make or break obviously, but curious.

[Wanderingdrock]

Anybody know a good tutorial for how to do the mega backdoor roth with a Vanguard 401k? Google is turning up lots of articles talking about the fact that you CAN do it, but no no real step-by-step instructions on HOW to do it

I don’t have Vanguard. I have Schwab. These are my steps:

1. Call Schwab 401k phone number and tell them I want to do an in-service distribution of my after-tax 401K funds. They will email me a withdrawal form. (The form has an ISBN code at the bottom that is unique and can’t be reused, so I have to call Schwab each time I want to do this to get a new form).

2. Fill out form indicating the after-tax withdrawal. I elect for NO tax withholding. I direct the after-tax contributions to be distributed to my Schwab Roth IRA, and any earnings on those contributions to be distributed to my Schwab IRA.

3. After I submit the form, it usually takes 2-3 business days to be processed.

4. I file a form with my Schwab 401K account and Schwab IRA (these are two different websites, a 401K administrative website and the normal Schwab brokerage website) to transfer the amounts deposited in the IRA back to the 401K. This final step is not necessary for the Mega Backdoor Roth, but it IS necessary if you’re doing the ordinary Backdoor Roth (which I assume you are, if you’re doing a MBDR). As an alternative, you could just transfer this amount to the Roth IRA but you will pay income tax on it, which I prefer to minimize.

Hi there, my firm also allows the Mega Backdoor Roth IRA and uses Schwab. How much % did you allocate for each account (traditional 401(k), Roth 401(k), after-tax) in Schwab? Basically, I'm trying to max out all of my retirement accounts (401k, Roth, HSA, Mega Backdoor IRA). Since I'm already using Schwab, should I create the Roth IRA account in Schwab as well? One of the books I read recommended Vanguard for Roth IRA. Thanks so much!!!

Can't answer your question but here to encourage everyone to be careful in their wording. There is no such thing as the bolded above. Mega Backdoor Roth refers to filling up the 401(k) to its (currently $58,000) limit. Backdoor Roth IRA refers to depositing money in your Roth IRA up to its (currently $6,000 per taxpayer) limit. These accounts are different and their limits are separate.

[Anonymous User]

As a STB associate who has talked to Fidelity about this the answer isn't a simple Yes.

You can make after tax contributions, but you can't roll them to a Roth while still employed unless you want to be barred from making new contributions. While those contributions sit in your 'normal' 401k, they incur a future tax obligation that would otherwise be avoided if they rolled into the roth.

Don't think the chart should be a simple 'yes' for STB given that situation.

I'm sure you saw this if you're still with STB, but just as a general FYI STB removed this restriction on post-tax contributions after an in-service withdrawal in Nov. 2021. So the answer is much closer to a simple yes now (barring brokerage-related hoops you have to jump through).

[EliteFlyer]

Would appreciate information on Proskauer and Weil. Does either one allow mega backdoor?

[Anonymous User]

Anybody know a good tutorial for how to do the mega backdoor roth with a Vanguard 401k? Google is turning up lots of articles talking about the fact that you CAN do it, but no no real step-by-step instructions on HOW to do it

I don’t have Vanguard. I have Schwab. These are my steps:

1. Call Schwab 401k phone number and tell them I want to do an in-service distribution of my after-tax 401K funds. They will email me a withdrawal form. (The form has an ISBN code at the bottom that is unique and can’t be reused, so I have to call Schwab each time I want to do this to get a new form).

2. Fill out form indicating the after-tax withdrawal. I elect for NO tax withholding. I direct the after-tax contributions to be distributed to my Schwab Roth IRA, and any earnings on those contributions to be distributed to my Schwab IRA.

3. After I submit the form, it usually takes 2-3 business days to be processed.

4. I file a form with my Schwab 401K account and Schwab IRA (these are two different websites, a 401K administrative website and the normal Schwab brokerage website) to transfer the amounts deposited in the IRA back to the 401K. This final step is not necessary for the Mega Backdoor Roth, but it IS necessary if you’re doing the ordinary Backdoor Roth (which I assume you are, if you’re doing a MBDR). As an alternative, you could just transfer this amount to the Roth IRA but you will pay income tax on it, which I prefer to minimize.

Hi there, my firm also allows the Mega Backdoor Roth IRA and uses Schwab. How much % did you allocate for each account (traditional 401(k), Roth 401(k), after-tax) in Schwab? Basically, I'm trying to max out all of my retirement accounts (401k, Roth, HSA, Mega Backdoor IRA). Since I'm already using Schwab, should I create the Roth IRA account in Schwab as well? One of the books I read recommended Vanguard for Roth IRA. Thanks so much!!!

Can't answer your question but here to encourage everyone to be careful in their wording. There is no such thing as the bolded above. Mega Backdoor Roth refers to filling up the 401(k) to its (currently $58,000) limit. Backdoor Roth IRA refers to depositing money in your Roth IRA up to its (currently $6,000 per taxpayer) limit. These accounts are different and their limits are separate.

This actually is a thing, although I think less common than the MBDR 401(k). Some plans allow after-tax contributions to your 401(k), and then allow those contributions to be rolled over to a Roth IRA. Biglaw Investor has an article about it: https://www.biglawinvestor.com/mega-backdoor-roth-ira/

[Anonymous User]

Anybody know a good tutorial for how to do the mega backdoor roth with a Vanguard 401k? Google is turning up lots of articles talking about the fact that you CAN do it, but no no real step-by-step instructions on HOW to do it

I don’t have Vanguard. I have Schwab. These are my steps:

1. Call Schwab 401k phone number and tell them I want to do an in-service distribution of my after-tax 401K funds. They will email me a withdrawal form. (The form has an ISBN code at the bottom that is unique and can’t be reused, so I have to call Schwab each time I want to do this to get a new form).

2. Fill out form indicating the after-tax withdrawal. I elect for NO tax withholding. I direct the after-tax contributions to be distributed to my Schwab Roth IRA, and any earnings on those contributions to be distributed to my Schwab IRA.

3. After I submit the form, it usually takes 2-3 business days to be processed.

4. I file a form with my Schwab 401K account and Schwab IRA (these are two different websites, a 401K administrative website and the normal Schwab brokerage website) to transfer the amounts deposited in the IRA back to the 401K. This final step is not necessary for the Mega Backdoor Roth, but it IS necessary if you’re doing the ordinary Backdoor Roth (which I assume you are, if you’re doing a MBDR). As an alternative, you could just transfer this amount to the Roth IRA but you will pay income tax on it, which I prefer to minimize.

My plan is also with Schwab, and on my plan they now have a button you can press on the "change your contributions" screen that is called the "automatic in-plan Roth rollover." If you activate it, it automatically rolls all after-tax contributions over to Roth as soon as they are contributed. It's a "set it and forget it" situation for me now.

Saves a ton of hassle. If your plan doesn't have that feature, might be worth seeing if you can get it added!

[Jchance]

Would appreciate information on Proskauer and Weil. Does either one allow mega backdoor?

Weil info available in the OP.

[Anonymous User]

Does anyone have any idea what will likely happen to 2022 backdoor Roth contributions if Congress passes the BBB Act over the next few months? The effective date was originally January 1, 2022, but given that the bill will pass after that date I'm hopeful it will get pushed to 2023 (or not pass at all). I was planning to use my EOY bonus to make my 2022 backdoor Roth contribution in early January and am wondering if anyone has any thoughts on what may happen if the government bans these conversions retroactive to January 1, 2022 (after I've made my contribution).

[peoplearehungry]

Does anyone have any idea what will likely happen to 2022 backdoor Roth contributions if Congress passes the BBB Act over the next few months? The effective date was originally January 1, 2022, but given that the bill will pass after that date I'm hopeful it will get pushed to 2023 (or not pass at all). I was planning to use my EOY bonus to make my 2022 backdoor Roth contribution in early January and am wondering if anyone has any thoughts on what may happen if the government bans these conversions retroactive to January 1, 2022 (after I've made my contribution).

Experts are saying its unlikely that Congress would make it retroactive. I would provide you a cite but I'm too lazy to look up where I read that. Google is your friend if you want more info.

[Wanderingdrock]

Anybody know a good tutorial for how to do the mega backdoor roth with a Vanguard 401k? Google is turning up lots of articles talking about the fact that you CAN do it, but no no real step-by-step instructions on HOW to do it

I don’t have Vanguard. I have Schwab. These are my steps:

1. Call Schwab 401k phone number and tell them I want to do an in-service distribution of my after-tax 401K funds. They will email me a withdrawal form. (The form has an ISBN code at the bottom that is unique and can’t be reused, so I have to call Schwab each time I want to do this to get a new form).

2. Fill out form indicating the after-tax withdrawal. I elect for NO tax withholding. I direct the after-tax contributions to be distributed to my Schwab Roth IRA, and any earnings on those contributions to be distributed to my Schwab IRA.

3. After I submit the form, it usually takes 2-3 business days to be processed.

4. I file a form with my Schwab 401K account and Schwab IRA (these are two different websites, a 401K administrative website and the normal Schwab brokerage website) to transfer the amounts deposited in the IRA back to the 401K. This final step is not necessary for the Mega Backdoor Roth, but it IS necessary if you’re doing the ordinary Backdoor Roth (which I assume you are, if you’re doing a MBDR). As an alternative, you could just transfer this amount to the Roth IRA but you will pay income tax on it, which I prefer to minimize.

Hi there, my firm also allows the Mega Backdoor Roth IRA and uses Schwab. How much % did you allocate for each account (traditional 401(k), Roth 401(k), after-tax) in Schwab? Basically, I'm trying to max out all of my retirement accounts (401k, Roth, HSA, Mega Backdoor IRA). Since I'm already using Schwab, should I create the Roth IRA account in Schwab as well? One of the books I read recommended Vanguard for Roth IRA. Thanks so much!!!

Can't answer your question but here to encourage everyone to be careful in their wording. There is no such thing as the bolded above. Mega Backdoor Roth refers to filling up the 401(k) to its (currently $58,000) limit. Backdoor Roth IRA refers to depositing money in your Roth IRA up to its (currently $6,000 per taxpayer) limit. These accounts are different and their limits are separate.

This actually is a thing, although I think less common than the MBDR 401(k). Some plans allow after-tax contributions to your 401(k), and then allow those contributions to be rolled over to a Roth IRA. Biglaw Investor has an article about it: https://www.biglawinvestor.com/mega-backdoor-roth-ira/

Fascinating - thanks. I knew this was possible in some plans but hadn't thought of it as a "MBDR IRA" because it's a 401(k) contribution followed by a rollover, not a direct IRA contribution. Still, I guess the terminology makes sense since it's effectively the same thing. I stand corrected!

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

I would've found a way if my firm had offered this. It's a ridiculously beneficial thing to do over the long haul and I would say that other savings goals (other than an HSA I guess) should take a back seat to filling this space up if it is available to you.

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

I would've found a way if my firm had offered this. It's a ridiculously beneficial thing to do over the long haul and I would say that other savings goals (other than an HSA I guess) should take a back seat to filling this space up if it is available to you.

+1, I’d do this first before paying off loans

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

I would've found a way if my firm had offered this. It's a ridiculously beneficial thing to do over the long haul and I would say that other savings goals (other than an HSA I guess) should take a back seat to filling this space up if it is available to you.

+1, I’d do this first before paying off loans

Original anon here. As a second year associate that's ~25% of my pretax salary, and I'm trying to buy a house in a year or two. Makes it tough to save for the down payment, but maybe I just take the bigger mortgage rather than waste this tax-advantaged space...

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

I would've found a way if my firm had offered this. It's a ridiculously beneficial thing to do over the long haul and I would say that other savings goals (other than an HSA I guess) should take a back seat to filling this space up if it is available to you.

+1, I’d do this first before paying off loans

Original anon here. As a second year associate that's ~25% of my pretax salary, and I'm trying to buy a house in a year or two. Makes it tough to save for the down payment, but maybe I just take the bigger mortgage rather than waste this tax-advantaged space...

I would 1000% take a bigger mortgage rather than waste this (precious) tax-advantaged space. Seriously wish my firm had made this available.

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

Paul Hastings does a thing where 8% of your salary (up to a limit which you start hitting definitely as a mid-level, maybe now as a junior with the recent increases) gets automatically deducted and deposited in your 401(k) pre-tax. It basically functions as an employer contribution so it doesn't count against the $19,500 (soon to be $20,500) voluntary contribution limit. If you max the voluntary contribution, you basically have ~$40,000 or so being deposited pre-tax into your 401(k), leaving you with less than $20,000 you have to come up with out of your take-home for the MBDR.

Very roughly, as a junior the math works out to something like 50% of your income in a HCOL city going to taxes and deductions (insurance, HSA, 401(k) voluntary and employer, and whatever else) and 50% being take-home, with that percentage slowly rising as you become more senior and your income rises faster than taxes and the allowable deductions. But even as a junior, if you're managing to spend less than ~$75k per year, you can max the MBDR contribution and still save something in addition.

You also don't have to max the MBDR - you can choose to put in only a partial contribution in year 1 and scale up as your income does, though personally I'd try to keep your spending low the first few years. Costs are higher today than several years ago when I started as a junior, but I was spending ~$2k/month on rent while I saved for a house, and I was able to max the MBDR once PH started to offer it (which, granted, I don't think was during my first or second year).

[Anonymous User]

Are junior associates maxing out their MBDR contributions? I'm finding it really hard/impossible to max this out on top of the regular 401(k), the BDR IRA, and saving for other non-retirement goals.

Paul Hastings does a thing where 8% of your salary (up to a limit which you start hitting definitely as a mid-level, maybe now as a junior with the recent increases) gets automatically deducted and deposited in your 401(k) pre-tax. It basically functions as an employer contribution so it doesn't count against the $19,500 (soon to be $20,500) voluntary contribution limit. If you max the voluntary contribution, you basically have ~$40,000 or so being deposited pre-tax into your 401(k), leaving you with less than $20,000 you have to come up with out of your take-home for the MBDR.

That's an amazing perk. I don't understand why firms don't advertise these things more, that would actually have an impact on some people's firm decisions.

You also don't have to max the MBDR - you can choose to put in only a partial contribution in year 1 and scale up as your income does, though personally I'd try to keep your spending low the first few years. Costs are higher today than several years ago when I started as a junior, but I was spending ~$2k/month on rent while I saved for a house, and I was able to max the MBDR once PH started to offer it (which, granted, I don't think was during my first or second year).

Yeah I think this is what I'm going to do. I think I can get up to ~$42k this year in the 401(k) (on top of the BDR IRA) and still make good progress on my down payment goal. Then next year when the big purchase is hopefully behind me and my income's gone up some, I can put the excess savings in the 401(k) as well.

[Anonymous User]

Can somebody please check to see if Willkie Farr allows this, before the new year? TIA!!