If you ever thought your friendly neighborhood financial advisor knows it all, think again! I learn new things from clients all the time. This little nugget came to my attention a few weeks ago. It will apply to very few people, but you might check it out if your 401(k) has an after-tax contribution provision.
The revelation was this:
For certain 401(k) plans with the right plan provisions, you can convert after-tax contributions to Roth money. This allows you to potentially put much more in your Roth (aka growing-tax-free) retirement bucket.
With plans with a Roth Conversion provision (not all plans offer this), you can move your after-tax money to Roth classification. Any interest earned on the after-tax contributions must also be converted, and you will owe taxes on that tax-deferred growth. But not the principal.
This technique could allow you to put much more money in a tax-free growth bucket than with a Roth IRA or Roth contributions within your workplace retirement plan.
As with everything in this blog, check with your CPA and financial advisor to see if this is a good move for you.