If you have access to a Roth 401k at work, you can decide whether to rollover the funds into this Roth 401k or a separate Roth IRA. If you have not maxed it out, you do not qualify for the Mega Backdoor. Mega Backdoor Roth Benefits. Reply With Mega Backdoor Roth strategy, Taylor can contribute significantly more than what she could have saved in a Roth IRA on a yearly basis. Considering that the annual cap for Roth IRAs is currently $6,000 ($7,000 if you’re over 50) in 2021, this is a big deal. I would say “Yes.” If you’re considering the backdoor Roth, the $6,000 or $12,000 most likely takes the place of a portion of your investments that would otherwise be invested in a taxable account. Investing. Before even thinking about doing the Mega Backdoor Roth IRA, you should max out all of your other tax-advantaged investment accounts. Many individuals are aware that in 2019 they can contribute up to $19,000 in their 401(k) as well as an additional $6,000 if they are 50 or older. First off, a backdoor Roth IRA is not a special type of Roth IRA. For a long time, it was an unspoken secret used by retirement planners. If you are 50 or older, have you contributed $26,000? Roth IRAs normally have an annual contribution limit of $6,000. You can only convert $7,000 to your Roth in 2020 using the backdoor Roth strategy. The main benefit of a mega backdoor Roth over a standard backdoor Roth is that you can contribute a much larger amount. Your company’s 401k plan must meet two specific criteria to do a Mega Backdoor Roth Allow after tax contributions above and beyond the $19,000 pre tax contribution limits for 2019. It's a few more steps, and there are specific rules about who has access to this. It's pretty obvious to see the advantages of these changes for us. Mega backdoor roth ira, worth it? Max out other tax-advantaged accounts first. Second, as mentioned before many employers don’t allow it. The backdoor Roth IRA is a great tool available to high income earners, but it's of great importance to view the conversion in the context of your total financial picture. A Mega Backdoor Roth is a “tax loophole” that allows high-income earners to put more of their paycheck into a Roth account and reap the benefits of tax-free growth. With the Mega Backdoor Roth, you're taking your after-tax 401(k) contributions ($19,500, or $26,000 if you're age 50 or over), converting them into a traditional IRA and then converting them into a Roth IRA. If you are considering a mega-backdoor Roth conversion it is important to view this in the context of your overall financial strategy. Yes it fracking is, and also, you suck. The mega backdoor Roth is simply the company retirement plan version of the backdoor Roth IRA. This is a potential strategy if you are looking for ways to optimize your long-term savings strategy and create additional tax diversification. I know if you did trad -> Roth IRA conversion, that has the 5 year waiting period, but I’m fairly certain the after-tax / Mega Backdoor doesn’t have the waiting period. Basically, the mega backdoor Roth IRA is just like a backdoor Roth, but since you can use 401(k) funds, the amount is a lot more. The after-tax contributions effectively become Roth IRA contributions. Advanced planning strategies, such as the mega backdoor Roth, can have many moving pieces and negative tax implications if done incorrectly. First saving $53,000 in a year isn’t easy, even if you’re a high-income earner. It should also be noted that you will pay social security taxes (if below the wage base) and Medicare taxes on the after-tax contribution. The mega backdoor Roth allows some investors to contribute as much as $37,500 extra (for 2020) to a Roth IRA. 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