Does that mean that if you make an after-tax non-Roth contribution to an after-tax 401k and have some small earnings before the conversion, that ALL the earnings are NOT taxed in that year? Just some of them at that time? And you have to somehow figure how much and track it?The gains in the after-tax 401k subaccount absolutely are subject to the pro-rata rule. Conversions always take prorated amounts of after-tax funds and earnings from that subaccount, just as with a backdoor Roth IRA. I'm sure what you intended to say here is that your IRA balances don't matter for your 401k conversations, only your 401k balances matter (and only that one subaccount).
I was thinking that if people are going to contribute to an after-tax 401k sub-account in the first place that they would be converting the entire balance as quickly as allowed to limit the earnings. Why would someone wait for the earnings to grow?Gains in the after-tax 401k subaccount are only fully taxed if you convert the entire balance of the subaccount. That's still the pro-rata rule in action, exactly the same as it would be for a backdoor Roth IRA. Converting the entire account is the common operation that we discuss here, but it doesn't necessarily make sense to do that if you have a large amount of earnings in that subaccount (again, that's exactly how the pro-rata rule works in an IRA).
Statistics: Posted by Duckie — Sat Feb 21, 2026 5:23 pm — Replies 11 — Views 1320