Does your company have an in-plan Roth conversion program? Are you taking advantage of it? If not, you may be missing out on one of the best retirement savings strategies than has come along in years.
A Mega Backdoor Roth, as it’s called, allows you to contribute additional after-tax dollars over and above the annual limit for retirement contributions. The way it works is that once these above-the limit-contributions are made they are converted into an after-tax Roth account.
High-earners typically are restricted from contributing to Roth IRAs because of the income limit. The Mega Backdoor Roth is a legal way to get around that.
Here’s an example.
Sally gets a job that offers a Mega Backdoor Roth in-plan conversion. She contributes the maximum $19,000 to her plan. Her employer provides a matching contribution of $6,000.
Because her progressive employer has an in-conversion plan, she can contribute extra after-tax dollars up to the IRS 2019 limit of $56,000 for total contributions to a retirement plan. This includes contributions from all sources, including pre-tax employee deferrals, employer matching contributions, and after-tax contributions for the Mega Backdoor Roth.
So. Sally can put up to an extra $31,000 into her plan. $56,000 (IRS max) less her $19,000 pre-tax and $6,000 employer match ($25,000) = $31,000.
The $31,000 will grow tax free.
Call us to figure out how you can take advantage of this plan and how much more you can put away for your retirement.