What is the Mega Backdoor Roth?


The Mega Backdoor Roth is a financial strategy that allows an individual to contribute additional funds to a Roth IRA, even if they are normally excluded due to income limitations. This is achieved using a process involving after-tax contributions to a 401(k) combined with in-service withdrawals that are then placed into a Roth IRA. Here's a breakdown:

  1. Contribution Limits and Process:

    • You have a total annual contribution limit of around $53,000 to $54,000 for a 401(k), depending on the year.
    • Of this amount, $18,000 can be contributed as employee deferrals to a traditional 401(k), leaving potential for further contributions.
    • The remaining balance, up to the total limit (e.g., $35,000), can be made as after-tax contributions.
    • These after-tax contributions are then converted through in-service withdrawals to a Roth IRA, maintaining their tax-free status upon withdrawal in retirement.
  2. Advantages:

    • Allows high-income earners to bypass income limits for Roth IRA contributions.
    • Enhances retirement savings and provides potential tax-free growth and withdrawals.
  3. Requirements:

    • Your employer must offer the option for after-tax 401(k) contributions and in-service withdrawals.
    • Not all employers provide this option, and the availability and exact benefits can vary.
  4. Considerations:

    • It's important to manage this process within a brief interval to minimize taxes on any gains that accrue between the after-tax contribution and the conversion to Roth IRA.

For a detailed explanation and practical use case, Brad Barrett and others discuss various aspects of this strategy, highlighting its benefits and complex nature 1 2 3.

Mega Backdoor Roth

Brad explains the Mega Backdoor Roth, a loophole that allows you to contribute up to $35,000 to a Roth IRA each year, even if you're excluded based on income limitations. He breaks down the $53,000 limit and how you can take advantage of after-tax contributions and in-service withdrawals to maximize your retirement savings and lower your tax liability.


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