Master the Mega Backdoor Roth in 60 Seconds or Less
The Mega Backdoor Roth is a powerful retirement savings strategy that allows high earners to maximize their contributions to a Roth IRA, even if they surpass income limits. Here’s how to master it in 60 seconds or less:
Know Your 401(k) Plan: Ensure your employer’s 401(k) plan allows after-tax contributions and in-service withdrawals. You’ll need both to execute the Mega Backdoor Roth.
Maximize Contributions: Contribute the maximum allowable amount to your 401(k)—for 2023, that’s $66,000 combined for employee and employer contributions (or $73,500 if age 50 or older). This includes your regular contributions and any employer match.
Utilize After-Tax Contributions: If your 401(k) plan permits, make after-tax contributions up to the total limit. This step is crucial as it enables you to funnel money into a Roth account.
Convert to Roth: Periodically (or as allowed), convert your after-tax contributions to a Roth IRA or back to the Roth component of your 401(k). The conversion typically incurs minimal taxes since after-tax contributions have already been taxed.
Enjoy Tax-Free Growth: Once the money is in your Roth IRA or Roth 401(k), enjoy tax-free growth and tax-free withdrawals in retirement, provided you meet the conditions.
By understanding these steps and ensuring your plan offers the necessary features, you can significantly boost your retirement savings through the Mega Backdoor Roth strategy. It’s a game changer for high-income earners looking to save more for the future!
The key is… your employer’s 401k plan must support After-tax contributions in order for you to contribute above the employer matching + $20,500 limit. My last employer supported this; my current employer is using a less-mainstream 401k provider and the plan doesn’t allow it, but I’m working to get that changed.
How about a segment on mastering the backdoor Roth solo-k?
The key is… your employer’s 401k plan must support After-tax contributions in order for you to contribute above the employer matching + $20,500 limit. My last employer supported this; my current employer is using a less-mainstream 401k provider and the plan doesn’t allow it, but I’m working to get that changed.