Is there anything I should consider if hit the 401K limit and elect to spillover with after tax funds?
I want to make sure I get my max employer matching, and not having to mess with my contribution % would be a nice perk.
Really the biggest thing is if your plan allows in-service Roth rollovers from After Tax funds.
If so, it can be lucrative but to maximize efficiency it requires doing a rollover every after-tax contribution.
If you don't have that option I probably wouldn't put the funds there and would contribute to a brokerage account I had more control over and less restrictions on.
If you're worried about match check with your company, many offer true up matches where if you max out the pre-tax they will up your match at the end of the year to make sure you didn't miss out.
But say your company doesn't true up or mega back door - then I would look to just contribute exactly what's needed each paycheck to hit the max at the end of the year and any excess just toss in your brokerage account after insuring you've made whatever IRA contribution you are entitled to.
Anyways both things to check and both things you have to think seriously about and consult your financial / tax advisors :)
I've been maxing my Roth IRA and 401k but I'm not familiar with the rollover situation. How does that work? Is there a specific amount you should be contributing to rollovers on a yearly basis? What is a mega rollover? I'm assuming since they are Roth that whatever funds are rolled over would be taxable. Is that correct?
So it sounds like you're kinda getting confused between Roth IRAs / Backdoor rollovers
And Roth 401ks / Mega Backdoor rollover
Ordering here is up to some debate and depends on your personal tax situation but generally you have buckets and in rough order of priority.
-401k amount employer will match (free money basically)
-IRA Contribution limit (whether direct Roth or Backdoor)
-Remaining employee contribution limit for 401k (22,500 max in 2023, whether pre-tax or Roth contributions)
-Catch-up contributions if 50 or over years old
-Maximum 401k contribution limit (up to 66,000 in 2023, including employer match total)
That last bullet is where the Mega Backdoor comes in. Some 401k plans allow you to make after tax contributions in excess of your 22,500 limit to your 401k (up to the limit of 66,000 - 22,500 - max employer annual match). The only reason to do this is that most, but not all, of those plans, then allow you to do an in service roll-over, rolling that after-tax contributions into your Roth 401k bucket. The downside of this is to avoid taxes on any gains you need to execute this every time (every paycheck) that you contribute after tax funds as until the rollover is executed any gains would be subject to taxes upon the rollover. I have read some funds do that rollover automatically which sounds nice!
Basically you can contribute an extra 30k-ish in Roth funds annually by doing this, if your employer offers it.
Congress had these back doors in their crosshairs, but for now at least, they are still open.