What is Mega Backdoor IRA?

The "mega backdoor Roth" is a strategy that allows high-income earners to contribute significantly more to a Roth account than standard Roth IRA limits allow. Here's a breakdown.

Key Concepts:

• Roth IRA Limitations:

  • Roth IRAs have income limits that restrict direct contributions for high earners.

• 401(k) Contribution Limits:

  • 401(k) plans have higher overall contribution limits than Roth IRAs.

  • These 401k limits have limits on employee pre tax and roth contributions, and seperate limits on total contributions, including employer matching, and after tax contributions.

• After-Tax Contributions:

  • Some 401(k) plans allow for after-tax contributions beyond the standard pre-tax or Roth contribution limits.

• Roth Conversion:

  • These after-tax 401(k) contributions can then be converted to a Roth IRA or Roth 401(k).

Important Consideration : Pro-rata rule: If you have existing pre-tax traditional IRA balances, the conversion can become more complex due to the pro-rata rule, which could result in a larger tax bill. To avoid complications, move any existing IRA funds into a 401(k) before initiating this process.

The total annual contribution limit in 2025 for employees and employers combined is $70,000. Always check current limit here.

Thank you and keep building your legacy through Generational Wealth! Take care and don't forget to enjoy the journey and take care of your health.

Note : Please note that the calculations are estimates based on certain assumptions, such as variable annual returns. This blog post is intended to illustrate the potential long-term benefits of consistent saving and investing, not to provide specific financial advice. The information presented on this blog, including any visualizations or projections based on average historical data, should not be considered financial advice. Investing involves inherent risks, and the value of investments can fluctuate significantly.

Call To Action : Open a ROTH IRA NOW and use it for Mega Backdoor!