Can I Make A Mega Backdoor Roth Contribution?

[Checklists and Flow Charts] - What is a Mega Backdoor Roth IRA? A Free Guide to This Tax Strategy | The Retirement Planning Group

What is a Mega Backdoor Roth Contribution?

A Mega Backdoor Roth Contribution is not as scary as it sounds. Here’s how it works:

  1. You make a non-Roth after-tax contribution to an employer 401(k) plan (if permitted by the employer’s 401(k) plan specifications).
  2. Then that contribution is rolled into a Roth IRA, either immediately or when you leave the company.

Using a Mega Backdoor Roth Contribution strategy, you could contribute tens of thousands of dollars into a Roth IRA. However, the rules are very restrictive and can be difficult to navigate.

How is a Mega Backdoor Roth Contribution different from a Backdoor Roth Contribution?

A Backdoor Roth Contribution generally involves making an after-tax contribution to a traditional IRA and then converting that amount into a Roth IRA. The key difference here is the traditional IRA.

To find out if this method is right for you, check out our “Can I Make A Mega Backdoor Roth IRA Contribution?” flowchart below.

It addresses some of the most common issues that arise for someone who is interested in making a Mega Backdoor Roth IRA contribution.

This flowchart considers:

  • The maximum amount that can be contributed
  • The impact of the ACP test
  • 401(k) plan-specific features providing in-service distributions and/or separate accounts
  • The tax impact upon rollover
  • The step-by-step process to complete this kind of contribution