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Unlock Greater Retirement Savings with a Mega Backdoor Roth Conversion
David Wiedmeyer

Looking for ways to put more into your ROTH? Check out how below:

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Are you looking for ways to maximize your retirement savings and take full advantage of tax-free growth? If you’re a high-income earner, the Mega Backdoor Roth Conversion could be a game-changer for your retirement strategy. Here’s a breakdown of how it works and how you can benefit:
 
What is a Mega Backdoor Roth Conversion?
 
A Mega Backdoor Roth Conversion allows you to contribute significantly more to a Roth IRA than the standard contribution limits by leveraging after-tax contributions to your 401(k). Here’s how it works:

1 . Maximize Traditional 401(k) Contributions
  • For 2024, you can contribute up to $23,000 to your 401(k) ($30,500 if you're over 50). These contributions are pre-tax, reducing your taxable income for the year.
2. Utilize After-Tax 401(k) Contributions
  • Many employers offer the option to make after-tax contributions to your 401(k) beyond the standard limits. The total 401(k) contribution limit (including employer match, employee contributions, and after-tax contributions) for 2024 is $69,000 ($76,500 if you're over 50).
3. Convert After-Tax Contributions to a Roth IRA
  • Once you’ve made after-tax contributions, you can convert these funds to a Roth IRA, where they can grow tax-free. This is known as a “Mega Backdoor Roth Conversion.”
  • The advantage here is that while your after-tax contributions have already been taxed, any growth on these contributions in the Roth IRA will be tax-free.

Benefits of a Mega Backdoor Roth Conversion
 
  • Significantly Increase Roth Savings: This strategy allows you to contribute much more to a Roth IRA than the annual limit of $7,000 ($8,000 if you're over 50).
  • Tax-Free Growth: All earnings on your converted funds grow tax-free, and qualified withdrawals in retirement are also tax-free.
  • Reduce Future Tax Liability: By moving funds to a Roth IRA, you reduce the amount of required minimum distributions (RMDs) you’ll have to take from your traditional retirement accounts, potentially lowering your future tax liability.
 
Is a Mega Backdoor Roth Conversion Right for You?
 
  • High-Income Earners: If you’re a high-income earner who has maxed out your traditional and Roth IRA contributions, this strategy can help you save even more for retirement.
  • Employer Plan Eligibility: Check if your employer’s 401(k) plan allows for after-tax contributions and in-plan Roth conversions or distributions to a Roth IRA.
  • Long-Term Investment Horizon: The longer your funds have to grow tax-free, the more advantageous this strategy becomes.
 
How to Get Started
  1. Check Your 401(k) Plan Rules: Confirm with your HR or benefits department if your plan allows for after-tax contributions and in-service distributions or in-plan Roth conversions.
  2. Contribute After-Tax Funds: Begin making after-tax contributions to your 401(k) once you’ve maxed out your pre-tax or Roth 401(k) contributions.
  3. Initiate the Conversion: Work with your plan administrator to convert after-tax contributions to your Roth IRA or conduct an in-plan Roth conversion.
This strategy can be complex, so it’s essential to work with a financial advisor or tax professional to ensure it’s executed correctly and aligns with your overall financial goals.
 
If you have any questions or want to explore if the Mega Backdoor Roth Conversion is right for you, please feel free to reach out. Text me at (937) 404-5180 or schedule time by clicking HERE. 




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