Mega Backdoor Roth
Add $50K+ to Your 401k
If you meet the eligibility requirements, you could stash an extra $41,500 for retirement in a Roth IRA.
The Mega Backdoor Roth takes investing in a traditional 401(k) to the next level for high-income earners.
However, it’s complicated, and mistakes can be costly.
Nevertheless, it works great for some. So, it’s worth learning about it. In this article, we’ll talk about the basic rules of a Mega Backdoor Roth.
What Is an Individual Retirement Account (IRA)?
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.
They incur a 10% early withdrawal penalty, but it’s waivable in certain situations.
Roth IRA Versus Traditional 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 profit
Unfortunately, high-income earners can’t directly contribute to a Roth IRA.
Maximum contributions are limited to individuals who earn less than $129,000 (single) and $204,000 (married).
Backdoor Roth IRA
The backdoor Roth IRA allows high-income earners to transfer funds from a traditional IRA to a Roth IRA, and may transfer up to the maximum $6,000.
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