If you’ve contributed the IRS maximum of pre-tax and Roth 401(k) contributions, you may consider making additional after-tax contributions to the Cotality 401(k) plan. Although these contributions are not matched by the Company, they can help you continue to save and prepare for retirement.
You can build more tax-free retirement income by making additional after-tax contributions and converting these contributions to Roth 401(k) contributions through an “in plan conversion.”
When you execute an in plan conversion, your after-tax contributions are automatically converted to Roth contributions. Unlike general after-tax contributions, Roth contributions offer the potential for tax-free income at retirement. If you meet certain restrictions, you won’t pay taxes on the value of the investment earnings made on your balance.
To convert your after-tax contributions to Roth 401(k), call a registered Fidelity representative at 1-800-603-4015. The Fidelity representative will be able to help you make your conversion.
Before you decide to convert your contributions, consider the following:
- Roth In Plan Conversion funds cannot be transferred back to after-tax funds.
- You will owe taxes on any investment earnings generated from after-tax contributions prior to your conversion date.
- You will receive periodic 402(f) (Rollover) notices electronically which will explain your distribution options and how each distribution will be taxed, including possible special tax treatment.
- You will also receive IRS Tax Form 1099-R in January of the year following the year you make any conversions.
- You satisfy requirements for a tax-free qualified Roth 401(k) distribution on any Roth In Plan Conversions by withdrawing five years after your first Roth 401(k) contribution or Roth In Plan Conversion and after you have turned age 59½ or become disabled or deceased.
It is important to maximize your traditional pre-tax and Roth 401(k) prior to considering after-tax contributions, as after-tax contributions are not matched by Cotality.