“Does it make sense for me to urge HR to add in-plan conversions to retirement plans?” (Photo subject is a model.) – MarketWatch Photo Illustration/iStockphoto
I am 52 years old and my wife is 46.
We have a taxable investment account with a total investment of $1.37 million invested in a stock market index fund. My Roth IRA has $28,000, also invested in the Total Stock Market Index Fund, while my wife has $7,000 in her Roth IRA, also invested in the Total Stock Market Index Fund.
My 401(k) has $868,000 invested in S&P 500 funds, and my wife’s 401(k) has $210,000 also invested in S&P 500 funds. We save $7,000 a month in taxable accounts, and we’re maxing out our 401(k) and Roth IRA (via backdoor Roth contributions).
My salary is $275,000 and my wife’s salary is $140,000. We fall into the 32% federal tax bracket and the 5.75% state tax bracket.
My question is:
My retirement plan allows after-tax contributions but not in-plan conversions. Does it make sense for me to ask HR to add an in-plan conversion to my retirement plan? Would this be too much trouble for the company?
Does it make sense for me to do a big backdoor Roth?
staff
Related: I’m 59 years old and making six figures, but my daughter wants me to retire so I can take care of my future grandchildren for a year. Can I afford it?
Thank you for prioritizing retirement savings and not letting the temptation of a big salary and lifestyle expenses stop you from thinking about the future for you and your wife.
For readers who don’t know, a giant backdoor Roth is a strategy where high-income earners put after-tax money into a 401(k) and then transfer that money to a Roth, where they might otherwise be limited or completely unable to contribute to a Roth IRA. In 2026, single filers can make full contributions to a Roth IRA if their income is less than $153,000 and phase out after $168,000; for married individuals filing jointly, the limits start at $242,000 and phase out after $252,000.
A Roth IRA is an ideal choice for those who want to be in a high tax bracket later in life because distributions will ultimately be tax-free (as opposed to a traditional IRA, where contributions are made with pre-tax money but withdrawals are taxed). Of course, even with the incentive of tax-free retirement distributions, this backdoor strategy comes with some caveats—you’ll have to pay taxes upfront on any money that hasn’t been taxed yet, which can be a hefty bill for high earners depending on the amount converted.
Still, massive backdoor conversions allow people to move more money into IRAs, which have much lower contribution limits than employer-sponsored retirement plans. By 2026, individuals can contribute up to $7,500 to an IRA (or $8,600 if 50 or older), while workers can contribute up to $24,500 per year in a 401(k) plan, plus an additional $8,000. According to the IRS, the SECURE 2.0 Act allows workers 60 and older to take advantage of higher catch-up limits.
“I believe this large backdoor Roth IRA conversion will be particularly attractive to investors who want significant tax-free growth in retirement and can withstand the tax hit of a current conversion,” said Jay Spector, certified financial planner and founding partner at Evervest Financial. “Years and potentially decades of tax-free growth can be incredibly beneficial.” These accounts are also not subject to minimum distribution requirements, he added.
You’re already familiar with backdoor Roths, which is great. For readers unfamiliar with these strategies: With a standard backdoor Roth, you can convert nondeductible contributions from a traditional IRA, which has the same contribution limits as a Roth IRA but without the income limits that prohibit high earners from participating. In contrast, a giant backdoor Roth uses accounts such as a 401(k).
So does Rose’s giant backdoor make sense to you? It’s possible – although there’s one major potential obstacle that I’ll get to later.
Bill Shafransky, a certified financial planner at Moneco Advisors, says giant backdoor Roths “only benefit if you’re already taking full advantage of your 401(k) plan.” “I absolutely love this strategy for clients when it makes sense. You’re going to be taxed on the money anyway, so might as well convert it to a Roth and let it grow tax-free from there.”
However, keep in mind that moving more pre-tax money from a 401(k) to a Roth IRA will trigger more taxable income, which may affect the amount you owe Uncle Sam in the short term. Conversions are treated as ordinary income. “So from a cash flow perspective, investors need to be comfortable with the current higher tax burden,” Spector said.
The main caveat I mentioned above is that this strategy only works if the employer allows after-tax contributions and allows funds to flow, as you already mentioned.
However, there are two ways to accomplish the latter: an in-plan Roth conversion, in which funds are transferred from your 401(k) to a Roth account within the same plan, or an in-service withdrawal, which allows employees to roll funds out of the plan into a separate Roth IRA, says James Malatos, certified financial planner and founder of Harbor View Private Wealth.
If you have enough influence in your company to encourage leadership to change the functionality of your retirement plan, there’s no harm in giving it a try. You may not be the only one to benefit from this move, especially if your colleagues are also high earners.
That said, there are many moving parts involved in offering and administering an employer-sponsored plan. At a very basic level, an in-plan conversion involves the 401(k) custodian moving funds from one account to another. Still, given the many rules, regulations and responsibilities associated with offering retirement plans to employees, companies must be careful about what they offer and allow. If a company fully understands IRS rules and works with a trustworthy custodian to manage its plan, this added feature may not be as troublesome as it might be for other companies.
Kate Feeney, a certified financial planner and vice president at Summit Place Financial Advisors, says if that’s not an option in the end, there are other things you can do with your “significant cash flow surplus.” One option is a health savings account, which is typically available to those with high-deductible health plans and can offer triple tax benefits on contributions, growth, and distributions.
Feeney adds that if you want to prioritize liquidity — especially in the next few years — sticking with taxable investment accounts may be your best bet, since retirement accounts are generally less flexible. (This may not apply to you because you already contribute a sizeable amount to taxable investment accounts each month, and diversification across various investment vehicles is a strong strategy in your case.)
If a giant backdoor Roth does become an option, given the potential tax consequences, you may want to hire a qualified tax professional to help you maximize your conversion rate while minimizing your tax liability.
For now, the key is determining whether you’re allowed to make such a switch. If this is you, be clear about the upfront costs and continue planning around your Roth IRA so that you can maintain a fully diversified retirement strategy.
