Strategy to Contribute More Than Roth IRA Limit Allows

Posted by Madison on October 29, 2007

One of my favorite retirement tools is a Roth IRA. Yearly contribution limits keep us from using it for all our retirement assets.

However, a little known way to contribute additional funds is through the use of an after tax account with an employer who allows in service withdrawals. Fortunately my employer allows this.

Here’s how to contribute to an after-tax account, roll to tax-deferred account, then to a tax-free account.

How to Contribute Extra Money to a Roth IRA

  1. Contribute to an after tax account with your employer plan.
  2. Request an in-service withdrawal of the after tax funds.
  3. Rollover the money to a tax traditional IRA.
  4. Convert the moeny from a traditional IRA to a Roth IRA.

To find out if your employer offers this, read your summary plan documents and look for in-service withdrawals.


For example, lets say my 401k plan at work allows 10% after-tax deferrals. I can take a regular withdrawal twice per calendar year. So my strategy is to ask my 401k for a withdrawal of only the after-tax portion (which for example at 50K salary would be $2500 each for a total of $5000). I will have it sent directly to my traditional IRA, then convert it to my Roth with no further tax due, since it was already after-tax when deposited into the 401k.

It is an easy way to get extra money into my Roth! This is on top of the regular Roth or nondeductible IRA contribution each year. I realize many probably wouldn’t be able to do this as the 401k provisions have to allow it, but check your summary plan documents just for fun – you might be surprised as I was. And yes, you can have a 401k and an IRA at the same time.

Don’t forget to file IRS Form 8606 at tax time and review the conversion rules. If you have pretax money in your IRA, this can also be coupled with strategies to roll over just enough each year to max out/stay in 15% tax bracket, minimizing taxes.

In addition, the provisions for the income limits to be removed in 2010 sweeten the deal.

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Comments to Strategy to Contribute More Than Roth IRA Limit Allows

  1. thats an interesting concept, but i’m not sure I followed how it worked.

    thanks for making me aware of it.

    Living Off Dividends

  2. Living Off Dividends- The traditional way to rollover money is from a 401k-IRA-Roth IRA after you leave a job.

    In this strategy, you complete the same rollover, but you add two twists: 1) you complete the rollover while still working and 2) you use after-tax dollars to fund the 401k plan, eliminating the need to pay tax on the rollover.


  3. Seems as though I read that, as a result of the Pension Reform Act, that (starting in 2008?) people will be able to rollover a 401(k) directly to a Roth IRA. If that is so, won’t a person be able to rollover their after-tax 401(k) contributions directly to a Roth IRA (with no addional taxes — and without a need to pro-rate after- vs. pre-tax IRA dollars), and rollover the pre-tax portion to a traditional IRA (assuming that they terminate his/her employment)?

    If so, that looks as though after-tax 401(k) contributions would be, virtually, Roth 401(k) contributions, for people whose employers don’t offer Roth 401(k)s. Thoughts?


  4. @ Karl This is something I hadn’t thought of. It should help to eliminate a lot of the paperwork trying to account for basis when moving through the IRA. To avoid that step and the prorating would be excellent! Good thinking.

    The contributions would almost be like a Roth 401k. You would still need to pay tax on the earnings between the contribution and the rollover. The quicker the rollover the better.


  5. My employer offers terrible 401k options. Do you know if it is possible for me to rollover my 401k into an IRA while still working here? All of my contributions have been pretax.



  6. @ Ben: Check your Summary Plan Document. There should be a section on withdrawals. If your plan allows withdrawals (regular ones, not hardship) you should be able to complete a rollover to an IRA.


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