Mega Backdoor Roth (Step by Step)

0:00 The mega backd door rth is a massive tax loophole that allows those that successfully use it to contribute an extra $46,000 per year to their rth retirement accounts the mega back door rth can put your rth account balances on steroids do you have any comments on the steroid allegation I said I'm not as this is over six times the annual limit for a Roth IRA and about twice the annual contribution limit of a raw 401K in this video I will explain the mega back door

0:29 Raw including its significant benefits and go through these specific steps on how to actually implement this tax strategy for yourself the mega rough is for those looking to take their rough retirement contributions to a whole another level and while it is well worth your time it is actually a bit harder to implement than a back door R Ira the mega backdoor R is for those looking to take their raw contributions to a whole another level and while it is well worth

0:57 Your time it is a bit harder to implement than the back door R Ira if you're already familiar with the backdoor R Ira then you know this is essentially just a tax strategy that allows those that can't contribute to a ra Ira to sidestep income limitations by contributing to a traditional IRA with non-deductible contributions and then just converting that traditional IRA to a rough IRA instead of contributing to a rough IRA directly there are some notable differences between the backd

1:25 Door rough IRA and the mega backd door rough but one of the most notable differences is the immense contribution potential that comes with the mega backd door raw hence its name potential L of potential yes the back door rth IRA limits the investor to contributing $77,000 in 2024 which is the limit for a raw for traditional IRA while the mega backdoor Roth allows the investor to actually contribute up to $46,000 extra dollars to either their rth Ira or their

1:55 Raw 401K in addition anyone that wants to pretty much can execute that back door rough IRA but this is not necessarily true for a mega back door rough you're actually going to need to be employed to make this happen and your employer is going to have to have a 401k provider that is going to allow you to make a couple of specific Maneuvers I'll talk about what those specific Maneuvers are in just a minute it is also notable that you can use the mega backd door

2:21 Rough to contribute to either a rough 401k or a rough IRA this is not the case with the backdoor rough IRA that is just going to be for a rth IRA account that's why this TX strategy is called the mega backdoor rth instead of the mega backdoor raw Ira or the mega backdoor raw 401K now that I have explained the significant benefits of the mega backdoor Roth and the differences between the mega back door Roth and the back door Roth IRA let me run through

2:51 The specific steps on how you can get this done the first step is going to be seeing if you can actually do the mega back door rough at all you're going to need to call your 401K Provider from your job and essentially ask them if they allow after tax contributions that's the first thing you need and the second thing you need is going to be in service distributions or withdrawals these two features from your 401k provider are going to be essential to

3:16 Actually making that Mega backd door rough work properly I could boggy down with all the details about the differences between after tax contributions and raw 401K contributions but instead I think that the main thing that you should really know is that the after tax contributions are not subject to the same limits as raw 41k contributions or traditional for 1K contributions the higher contribution limits on the after tax contributions are one of the two mechanisms that

3:45 Really make the mega back door rth work you are limited to contributing $23,000 to a traditional or a rth 401k per year that's as of 2024 but with the after attx 41k you're actually allowed to contribute an additional $46,000 per year to that after tax 401K this after tax 401K is actually a third type of 401K retirement account that most people don't know about it and it's what makes the mega back door off possible if you're 401K administrator will allow the

4:17 After tax contributions and they will also allow inservice distributions and withdrawals which essentially just means that they're going to allow you to take what's in that after tax account and convert it to a Roth 401k or a Roth IRA then the megaa Roth is possible for you that's why I said earlier in the video that the mega B Roth is not possible for everyone you need to have a 401k administrator that will allow you to make these Maneuvers assuming your

4:50 Employer's 401k plan administrator will allow you to make the after tax contributions and roll them over or convert them to another Raw account that could be a raw P or a raw 401K then the second step that you're going to want to take is to actually max out those normal rough contributions to your 401k once you maxed out your regular 401K contributions the next step is going to be to contribute additional funds to your 401k plan but it's going to be in that after tax 401K the total

5:23 Combined limit across all your 401k accounts that's going to be your rough your traditional your after tax it's going to be $69,000 in 2024 if you're over 50 you can actually contribute up to $76,500 per year across all your retirement accounts it's notable to mention this includes employer contributions after you make your after tax contributions it's time to actually take that after tax account and convert it you can convert it roll it over to a

5:54 Raw Ira or a raw 401K you should convert that after tax 401k as soon as you possibly can because any gains made in that after tax 41k before the conversion are going to be taxed at conversion this is similar to how the back door rth Ira works in the sense that you pay taxes on any of the gains that you make in that traditional irra prior to conversion the fourth and the final step is going to be to exploit this tax loophole as much as possible for as long as it exists for

6:25 Maximum benefit you should convert your after tax account to a rough account often I would even suggest trying to automate this through your 401k provider because all the gains that are made in the after tax account will be taxed upon conversion so you want to make sure that the gains happen mostly in the rough account so that you won't get tax on them at all I think that is also worth mentioning if you somehow make this much money you can actually use a back door

6:51 Rough ra and a mega back door raw in the same year they are separate contribution limits independent of each other which Speaking of I covered the back door R Ira in my last video so if you're interested in learning about an easier tax strategy the back door R IR is far easier to implement then I would suggest checking out that video right here thanks for watching