🚪 The Simple Guide to the Mega Back Door Roth IRA
🚪 The Mega Backdoor Roth IRA: Sounds like a secret financial maneuver only known to the elite, right? Well, not anymore. Today, we're spilling the beans on this advanced retirement savings strategy. Buckle up!
1️⃣ What's the Mega Backdoor Roth IRA? Before we dive deep, let's get our basics right. It's an advanced strategy that lets you contribute an extra amount to your Roth IRA, over and above the regular contribution limits. If your employer allows it you can put up to $43,500 of post-tax dollars in 2023 into their 401(k) plan and then roll it into a mega backdoor Roth, which is either a Roth IRA or Roth 401(k). Think of it as the VIP pass to the Roth party.
2️⃣ After-Tax Contrinutions💰 This is pretty straightforward: Either your employer plan allows after-tax contributions or it doesn’t.
If it does, here’s how to figure out the maximum amount you’re allowed to put into the after-tax portion of the plan:
If your 401(k) plan allows for after-tax contributions, the maximum that you and your employer combined can put into your 401(k) is $66,000, or $73,500 for individuals 50 and older in 2023.
For example, let's say you earn $200,000 annually and you contributed the pre-tax limit of $22,500 in 2023. Your employer also matched your contributions by 6% of your salary, adding $12,000 to your contributions. That brings your total pre-tax contributions for that year to $34,500.
Because the total limit is $66,000, you can still contribute an additional $31,500 in after-tax dollars.
3️⃣ Step-by-Step Guide:
- Start with a 401(k): Ensure your employer's 401(k) plan allows after-tax contributions and in-service withdrawals. If not, lobby for it during the next water cooler chat.
- Max Out After-Tax Contributions: After you've hit the pre-tax contribution limit ($22,500 in 2023, up from $19,500 in previous years), start making after-tax contributions.
- Roll It Over Periodically roll these after-tax contributions into a Roth IRA. This is the "backdoor" part. It's like sneaking into the VIP section after buying a general ticket.
- Watch It Grow: Now, your money will grow tax-free in the Roth IRA. When retirement comes knocking, you can make withdrawals without Uncle Sam taking a cut.
4️⃣ A Word of Caution: This isn't a beginner's game. There are rules, potential pitfalls, and tax implications. Always consult with a CPA before making any moves.
5️⃣ Stay Updated: Contribution limits and tax laws change. Keep an eye out for updates to ensure you're maximizing your benefits without breaking any rules.
🔥 Hot Take: The Mega Backdoor Roth IRA isn't just for the mega-rich. With the right strategy, it can be a game-changer for anyone looking to supercharge their retirement savings.
📚 Dive Deeper: Want to become a Mega Backdoor Roth IRA ninja? Check out this comprehensive guide for all the nitty-gritty details. And here's an article that I love that dives even deeper.
