Mega Backdoor Roth

Roth accounts are the hidden gems of retirement planning – offering the promise of tax-free growth, seamless investment trading, and a future free from tax burdens. While many are familiar with traditional Roth IRAs and 401(k)s, there's a secret weapon that few know about: the Mega Backdoor Roth.

Why Roth?

• Tax-free growth: Watch your investments thrive without the drag of taxes eating into your profits.

• Tax-free trading: Enjoy the freedom to buy and sell within your account without worrying about tax consequences.

• Tax-free future: Say goodbye to taxes in retirement – every dollar withdrawn is yours to keep.

Three Ways to Roth:

1. Roth IRA / Backdoor Roth IRA

2. Roth 401(k)

3. Mega Backdoor Roth 401(k)

Combining all three could mean a staggering $76,000 funneled into Roth accounts annually:

• $7,000 from Backdoor Roth IRA

• $23,000 from Roth 401(k)

• $46,000 from Mega Backdoor Roth 401(k)

Let's dive into the Mega Backdoor Roth:

Step 1: Verify Your Options

• Ensure your 401(k) plan offers after-tax contributions and in-service withdrawals. If uncertain, reach out to HR with a simple inquiry.

Step 2: Determine Contribution Limits

• Know your limits – aim to maximize your $69,000 annual 401(k) contribution room, adjusting for pre-tax contributions and employer matches.

Step 3: Max Out Your 401(k)

• Contribute the maximum allowable pre-tax amount ($23,000) to your 401(k).

Step 4: Make After-Tax Contributions

• Fill the remaining contribution room with after-tax contributions, up to the annual limit.

Step 5: Convert to Roth

• Don't overlook this critical step – convert your after-tax contributions to a Roth 401(k) or Roth IRA to ensure tax-free growth.

For business owners, setting up a 401(k) plan that allows for this strategy is key. Request the feature from your plan provider and follow the same steps outlined above.

Imagine funneling $60,000 annually into Roth accounts for a decade. By age 65, you could be sitting on nearly $4.5 million in tax-free retirement savings – a game-changer for your golden years.

The Mega Backdoor Roth isn't just another retirement strategy – it's a roadmap to financial freedom. So seize the opportunity, harness the power of Roth, and pave the way to a tax-free retirement paradise.

If you have any more questions about Roth IRA or planning for your retirement, please feel free to call or email me at (615) 844-3398 or Jim.Maddux@raymondjames.com. 

Disclosure:

Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional.