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MEGA Backdoor Roth

March 21, 2024

An underutilized, often unknown, retirement savings strategy that allows you to contribute more money to your Roth IRA than the annual limit. On top of that, this strategy allows those who are ineligible to directly contribute to a Roth IRA, due to their income, to be able to contribute.

How? By leveraging your employer sponsored 401(k) plan or other workplace retirement plan.

How Does it Work?
First be able to contribute after-tax dollars: Go beyond your 401(k) pre-tax and/or Roth contributions by contributing after-tax dollars.

Your Plan Must Allow for Either of These 2 Options:
        1. In-service distribution: Convert your after-tax contributions to a Roth IRA.
        2. In-plan Roth conversion: Convert your after-tax contributions to the Roth 401(k) within your plan.

Benefits of Mega Backdoor Roth:
        • Maximize your 401(k) contributions: *Be aware of annual contribution limits*
        • Tax-free growth.
        • Enjoy tax-free withdrawals later.
        • Escape RMDs: Unlike traditional IRAs and 401(k)s, Roth IRAs do not have RMD requirements during your lifetime.
               a. Additionally, for this year and after, RMDs are no longer required from designated Roth accounts (EX. Roth 401(k)s)

A Couple Examples of Who May Benefit.
        • High-income earners seeking additional tax-advantaged savings.
        • Those aiming for tax diversification and flexibility in retirement income.

Things to Consider:
        1. Check your plan compatibility: Verify your employer’s 401(k) plan permits after-tax contributions plus allows for (1) in-service distributions of after-tax contributions and/or (2) in-plan Roth conversions.
        2. Complexity: This strategy can be complex, therefore it’s crucial to consult with a financial advisor and tax professional to navigate the nuances.

Be sure to consult with a financial advisor to ensure this strategy aligns with your individual goals and overall financial plan. If this strategy is not a fit for your situation or income, there are other options.

Disclosure:

Retirement Planning Solutions, LLC is an SEC registered investment adviser. SEC registration does not constitute an endorsement of Retirement Planning Solutions, LLC by the SEC nor does it indicate that Retirement Planning Solutions, LLC has attained a particular level of skill or ability. This material prepared by Retirement Planning Solutions, LLC is for informational purposes only and is accurate as of the date it was prepared. It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Advisory services are only offered to clients or prospective clients where Retirement Planning Solutions, LLC and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Retirement Planning Solutions, LLC unless a client service agreement is in place. This material is not intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Retirement Planning Solutions, LLC is not an accounting firm. Please consult with your tax professional regarding your specific tax situation when determining if any of the mentioned strategies are right for you.