Friends,
We wanted to discuss the value that a mega backdoor Roth strategy can provide you. The strategy of making after-tax contributions to your workplace retirement plan can provide the opportunity to put more money in a Roth IRA or Roth 401(k) for those typically ineligible to make contributions. The method can be particularly useful for those who earn too much to contribute to a Roth IRA directly.
Who is a Mega Backdoor Roth for?
- Individuals contributing to a workplace retirement plan (e.g. 401(k)) who are able to make large contributions or max it out
- 401(k) maximum contributions for 2025 are $70,000 (including employer contributions) for those under 50 and $77,500 for those over 50. For those aged 60-63, the figure rises to $81,250
- Those with large pre-tax qualified assets, such as 401(k)s or Traditional IRAs, looking to build assets that have already been taxed
- People with workplace retirement plans that allow for after-tax contributions, in-service withdrawals, and/or a Roth 401(k) with in-plan Roth conversion options
How does it work?
- The individual makes after-tax contributions to the retirement plan
- The after-tax contribution amount is converted to either a Roth IRA or Roth 401(k)
What limits are there?
- The maximum amount in after-tax contributions someone can make is the 401(k)-limit mentioned above minus any contributions already made in the current year.
- Ex. $23,500 in employee 401(k) contributions, $11,750 in employer match
- $70,000 ‒ $23,500 ‒ $11,750 = $34,750
- In this example, the individual can make a $34,750 after-tax contribution, which can be converted into a Roth if the plan allows
- There are no limits on how much can be converted to a Roth IRA each year or on in-plan conversions
To learn more about how a Mega Backdoor Roth might benefit you, please reach out to us!
Andrew
Source: What is a mega backdoor Roth? | IRA conversion | Fidelity
*Consult with a tax professional before making any decisions regarding Roth conversions or contributions.