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.
- Does my 401(k) allow for after-tax contributions?
- Does my 401(k) allow for in-service distribution?
- 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.
- Most 401(k) plans only allow for contributions to be made via payroll deductions.
- Once you have maximized your employee contribution, you will need to change future contributions to after-tax.
- You will also need to change the future investment election to a money market.
- 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.