In-service 401(a) withdrawals for engineers

At AdviceOne, we specialize in helping engineers and executives make the most of their retirement savings. One powerful and often overlooked strategy is the Mega Roth Conversion. This approach leverages after-tax contributions within your 401(a) or 401(k) plan to maximize your retirement savings potential and enhance your long-term financial security.

Understanding 401(k) and 401(a) Plans

Both 401(k) and 401(a) plans are employer-sponsored vehicles designed to help individuals save for retirement, but they have key differences that impact how you can contribute and utilize these plans:

• 401(k) Plans: These allow employees to contribute a portion of their pre-tax salary toward retirement savings, often with employer-matching contributions. Depending on the plan, employees may also have the option to contribute after-tax dollars or make Roth contributions.
• 401(a) Plans: These plans are typically offered by government agencies, educational institutions, and nonprofit organizations. Unlike 401(k) plans, 401(a) plans do not always permit employee contributions. Instead, employers make contributions on behalf of employees, and the terms of the plan-including contribution limits and investment options-are dictated by the employer.

Understanding these distinctions is crucial for engineers and executives aiming to optimize their retirement savings strategy, particularly when considering a Mega Roth Conversion.

The Power of the Mega Roth Conversion

The Mega Roth Conversion is an advanced retirement savings strategy that takes full advantage of after-tax contributions. Unlike pre-tax contributions, after-tax contributions allow you to exceed the conventional IRS-imposed limits on 401(k) contributions.

For example, in 2025 , individuals over the age of 50 can contribute up to $31,000  in pre-tax funds to their 401(k). However, with after-tax contributions, the total allowable contribution-including both employee and employer contributions-jumps to $77,000 . This additional contribution capacity creates a powerful opportunity to maximize retirement savings.

Implementing the Mega Roth Conversion

Consider the following scenario: An engineer with a 37-year career has diligently contributed after-tax funds to their employer-sponsored plan, accumulating $252,000 in after-tax contributions. Over time, these contributions have grown tax-deferred to a total of $471,000.

Through the Mega Roth Conversion, this individual can execute an in-service withdrawal of their after-tax contributions, getting their non-taxable contributions into Roth completely and utterly tax-free. The process unfolds as follows:

1. Separation of Funds: Upon initiating the in-service withdrawal, the company plan disburses two checks:
   1. One for the earnings on the after-tax contributions (taxable portion: $219,000)
   2. One for the principal after-tax contributions (non-taxable portion: $252,000)
2. Rollovers to Maximize Tax Efficiency:
   1. The taxable portion ($219,000) is directly rolled over to a traditional IRA via a trustee-to-trustee transfer, ensuring the funds remain tax-deferred.
   2. The after-tax portion ($252,000) can be deposited into a Roth IRA within 60 days under IRS guidelines, converting it into a tax-free asset.

 

The Benefits of a Mega Roth Conversion

• Tax-Free Growth: Once inside a Roth IRA, the converted funds grow tax-free, ensuring that future withdrawals are also tax-free.
• Wealth Preservation: By indirectly rolling after-tax contributions into a Roth IRA, you now have more options for your withdrawal strategy in retirement. This gives you control over your future tax brackets regardless of who’s in office.
• Strategic Legacy Planning: Roth IRAs are not subject to required minimum distributions (RMDs) during the account holder’s lifetime. This flexibility allows for tax-efficient estate planning and wealth transfer to beneficiaries.

 

Real-World Impact: Case Study of an Engineering Executive

Mr. John Smith, a 35-year veteran in the engineering industry, approached AdviceOne seeking guidance on optimizing his retirement savings. While he had contributed diligently to his employer’s 401(a) plan, he was unaware of the potential advantages of a Mega Roth Conversion.

After a thorough and collaborative review of John’s financial situation and retirement portfolio, he arrived at the decision to move forward with separating his after-tax contributions from its taxable earnings within his 401(a). Working in tandem with AdviceOne and plan administrators, the Mega Roth Conversion was completed with the following process:

• Assessment of Contributions: We discovered that Mr. Smith had accumulated $300,000 in after-tax contributions.
• Execution of the In-Service Withdrawal: We facilitated the distribution of these funds, ensuring compliance with IRS regulations.
• Strategic Rollover:
  • The taxable earnings portion was rolled over to a traditional IRA, maintaining its tax-deferred status.
  • The after-tax portion was deposited into a Roth IRA, unlocking immediate tax-free growth potential.

 

Results:

• Smith secured $300,000 in tax-free retirement savings, which will grow tax-free for his life and his spouse’s life, plus 10 more years for his children.
• He eliminated future RMD obligations on the converted funds, allowing greater control over his retirement income strategy.
• He positioned himself for a more tax-efficient legacy transfer to his heirs.

 

Conclusion

The Mega Roth Conversion is a game-changing retirement strategy that offers unparalleled benefits to engineers and executives looking to optimize their retirement savings. By leveraging after-tax contributions and strategically executing in-service withdrawals, individuals can gain tax-free growth on a significant portion of their retirement savings, reduce future tax liabilities, and enhance financial flexibility in retirement.

 

AdviceOne Advisory Services, LLC (“AdviceOne”) is a registered investment advisor. Advisory services are only offered to clients or prospective clients where AdviceOne and its representatives are properly licensed or exempt from licensure.

This information is general in nature and should not be considered tax advice. Investors should consult with a qualified tax consultant as to their particular situation.

The information provided is for educational and informational purposes only and does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. You should consult your attorney or tax advisor.

Any case study that is provided is for illustrative purposes only to provide an example of the firm’s process and methodology. The results portrayed in any case study are not representative of all client situations or experiences. An individual’s experience may vary based on his or her individual circumstances and there can be no assurance that the firm will be able to achieve similar results in comparable situations. No portion of any case study is to be interpreted as a testimonial or endorsement of the firm’s investment advisory services. The information contained herein should not be construed as personalized investment advice.