Mega Backdoor Roth: Add $50K+ to Your 401k


The Mega Backdoor Roth takes investing in a traditional 401(k) to the next level for high-income earners. If you meet the eligibility requirements, you could stash an extra $41,500 for retirement in a Roth IRA. However, it’s complicated, and mistakes can be costly.

An individual retirement account (IRA) is a savings and investment account with tax advantages. A traditional IRA uses pre-taxed dollars, while a Roth IRA uses after-tax dollars. As a result, they both have tax savings, either now or later.

What Is an Individual Retirement Account (IRA)?

A Roth IRA is an individual retirement account (IRA) funded with after-tax dollars. It allows funds to grow over time without incurring taxes on the profits. In other words, withdrawals aren’t taxed during retirement, leaving more money in the pockets of retirees.

Roth IRA Versus Traditional IRA

Roth IRA Versus Traditional IRA

The traditional IRA offers an upfront tax-deduction on contributions with taxable withdrawals during retirement. However, It doesn’t come with income limits.

Backdoor Roth IRA

The backdoor Roth IRA allows high-income earners to transfer funds from a traditional IRA to a Roth IRA. Individuals must pay taxes on the money that is transferred (since they didn’t pay taxes on the original contribution) and may transfer up to the maximum $6,000 contribution limit for individuals younger than 50 years of age ($7,000 for those over 50 years of age).

After maximizing your contributions to a traditional 401(k) ($19,500 for anyone under age 50, $25,000 for anyone over age 50), you can contribute after-tax dollars up to the annual maximum (employee and employer-match) contribution if your employer plan allows it. That’s an additional $41,500 in a Roth IRA with after-tax dollars ($48,000 for those over age 50).

Mega Backdoor Roth IRA

1. It can rapidly increase overall retirement savings rates.  2. The Mega Backdoor Roth IRA allows for significant tax-deferred growth when done correctly.

Benefits of a Mega Backdoor Roth IRA

1. It’s not easy to contribute beyond the tax-deferred contributions. 2. Not all employers offer Rollover Roth IRA options. 3. Regulations may change. 4. Withdrawals are subject to the Pro-Rata Rule.

Cons of the Mega Backdoor Roth IRA

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