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Mega-Backdoor Roth IRA

Today, we’re diving into a supercharged retirement savings strategy: the Mega-Backdoor Roth IRA. If you’re a high earner looking to maximize your retirement funds, this might be the perfect tool for you.

What’s a Mega-Backdoor Roth IRA?

Simply put, a Mega-Backdoor Roth IRA is a way to allow high-income earners to sidestep the usual contribution limits and income restrictions associated with Roth IRAs. This involves making after-tax contributions to your 401(k) and then converting those to a Roth IRA. It's a smart move for anyone wanting to grow their savings tax-free.

How Does It Work?

1. Max Out Your 401k: First, contribute the maximum amount to your 401k contributions. For 2024, this limit is $23,000, or an additional $7500 if you're over 50.

2. Make After-Tax Contributions: Some 401k plans let you put in after-tax money beyond that limit. In 2024, the combined limit for contributions (including what your employer kicks in) is $69,000, or $76,500 if you’re over 50.

3. In-Plan Roth Conversion or Roll Over: You can then convert those after-tax contributions to a Roth 401k or roll them over to a Roth IRA. This way, you get around the income limits for regular Roth IRAs.

*This can also be done with your Solo 401k and with the click of a button in Carry.

Why Consider a Mega-Backdoor Roth?

• Tax-Free Growth: Money in a Roth IRA grows tax-free, and you won’t pay taxes on withdrawals in retirement.

• No Income Caps: This strategy isn’t restricted by income, making it accessible for high earners.

• Higher Contribution Limits: You can potentially contribute tens of thousands more per year than with a regular Roth IRA.

Things to Keep in Mind

• Check Your Plan: Not all 401k plans offer after-tax contributions or easy conversions. Ask your HR department if your plan allows this. If you have a Solo 401k this is possible with a Carry account.

• Tax Details: When you convert, you won’t pay taxes on the after-tax contributions, but you might on any earnings.

• Get Advice: It can be a bit complex, so talking to a financial advisor is a good idea to navigate the complexities. We’re sharing this for information purposes only, this isn’t tax or investment advice.

*Have a Carry Pro Plan? You can check in with your financial planner.

Final Thoughts

The Mega-Backdoor Roth IRA can be a game-changer for your retirement strategy. By making the most of this option, you can significantly boost your tax-advantaged savings.

What’s Happening at Carry?

Here’s what you can expect in the coming weeks

See the full list of events here. ⏰

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If you want more resources on building wealth as a solopreneur/entrepreneur, check these out:

• The Solo 401k handbook 

• The Roth IRA handbook 

• The Self-Directed IRA handbook 

• The Guide to Paying Less in Taxes

• What is a Solo 401k?

• How to Open a Solo 401k