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Could you move money to a Roth IRA tax-free right now?
Some 401(k) plans allow contributions beyond the standard $23,000 annual limit — called after-tax (non-Roth) contributions. At separation, the portion you already paid taxes on can roll directly to a Roth IRA with zero additional tax. Most people don't know they have this. This window closes when the rollover is complete.
How the separation-day rollover works
- What is an after-tax 401(k) contribution?
- Some plans allow you to contribute beyond the standard $23,000 pre-tax or Roth limit — using after-tax dollars (money you already paid income tax on). These are different from Roth 401(k) contributions and often appear as a separate line on your statement labeled "voluntary after-tax" or "non-deductible."
- Why does separation matter?
- When you leave a job, you can split your rollover: the after-tax principal goes to a Roth IRA (tax-free, since you already paid tax on it), and the earnings on that after-tax money go to a Traditional IRA. This is sometimes called the "mega backdoor Roth at separation." It only works when you leave — once everything rolls into a Traditional IRA, the opportunity is gone.
- Is this IRS-approved?
- Yes. IRS Notice 2014-54 explicitly permits splitting rollover distributions so that after-tax amounts go to a Roth IRA. It is a legal, documented strategy. Many plan administrators are unfamiliar with it — if your custodian pushes back, reference IRS Notice 2014-54 and ask to escalate.
Related
This tool provides educational information based on IRS rules (Notice 2014-54). It is not personalized tax advice. For balances over $50,000, consult a CPA before initiating any rollover — execution must be correct at the time of distribution.