Mega Backdoor Roth

The Mega Backdoor Roth, is a mechanism that allows you to invest an extra $43,500 in a tax advantaged way each year. Yes, you read that right, saving taxes on $43,500!

It’s only possible through some 401(k) plans, so you’ll need to check. It requires your employer to offer after-tax contributions, which are different to pre-tax contributions or Roth contributions, and it also requires your employer to offer in-service distributions to a Roth IRA, or move money from the after-tax portion of the plan into the Roth 401(k) part of the plan.

Once you’ve checked, if your plan meets both of these criteria, and you have enough money to cover all of your expenses that you can afford to redirect even more money into retirement accounts, then you’re ready to go with the Mega Backdoor Roth.

Firstly, start your after-tax contributions. Then, on a regular basis, ring your plan provider and perform an in-plan rollover to the Roth 401(k).

There’s then an additional step that you can choose to take to rollover the Roth 401(k) balance into a Roth IRA. The key benefit this gives you is the ability to withdraw these funds.

There’s a lot more to be said on this topic and it’s due a full article, but for now, here’s a link out to a great resource on NerdWallet with more details. Mega Backdoor Roths: How They Work – NerdWallet

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