Mega Backdoor Roth IRA

This a brief explanation of the Mega Backdoor Roth IRA strategy. 

In my opinion, Financial Planning is understanding the rules/laws and applying them to your situation. 

In 2023, $66,000 can be contributed to a 401(k).  The maximum employee contribution is $22,500 ($30,000 for age 50 or older).  An additional $43,500 can be contributed to a 401(k), minus the employer match if one is provided.  

What is the Mega Backdoor Roth IRA strategy?

In certain situations, an individual can contribute after-tax funds to a 401(k) and either roll those funds to a Roth IRA or transfer the funds to a Roth account within the 401(k).  

How can this be accomplished?

You will need to call you plan administrator and ask the following questions.

1.  Does my 401(k) allow for after-tax contributions?
2.  Does my 401(k) allow for in-service distribution?
   1. An in-service distribution is a rollover to a Roth IRA or a transfer to the Roth account within the 401(k).  

If these two conditions are met, you have the ability to take advantage of the Mega Roth Backdoor IRA strategy. 

A few other items to note.

1. Most 401(k) plans only allow for contributions to be made via payroll deductions.
2. Once you have maximized your employee contribution, you will need to change future contributions to after-tax.
3. You will also need to change the future investment election to a money market.  
4. Once the After-tax contribution has been made, you will want to call the plan administrator and process the in-service distribution. 

This is a brief explanation of the Mega Roth Backdoor IRA strategy. 

* This post is for informational purposes only.  Please consult a professional for financial planning advice.