How the Mega Backdoor Roth Can Help You Save Thousands Long-term in Retirement

What is the Mega Backdoor Roth IRA and how is it different from the traditional Roth IRA strategy? In an example for an individual who earns $300,000 annually, Troy Sharpe CFP breaks down the potential savings achieved through both traditional and the Mega Backdoor Roth IRA strategies depending on several factors including the individual's age, contribution amounts, investment returns, and tax bracket. By utilizing this strategy effectively, individuals may potentially save thousands of dollars in taxes over the long term, as they benefit from tax-free growth and withdrawals in retirement, compared to traditional taxable investment accounts.
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🏃🏻 Jump right in:
00:00 Introduction to Roth IRA Strategies
00:45 Backdoor Roth IRA vs. Mega Backdoor Roth IRA
02:41 Understanding Roth IRA Contribution Eligibility
03:25 Navigating Income Limits for Roth IRA Contributions
04:10 Process of Backdoor Roth IRA Contributions
05:29 Benefits and Considerations of Backdoor Roth IRA
06:18 Limitations and Pitfalls of Backdoor Roth IRA
07:44 The Pro-Rata Rule in Backdoor Roth IRA
08:27 Maximizing Contributions through Mega Backdoor Roth IRA
09:59 Calculating Contributions in Mega Backdoor Roth IRA
11:25 Employer Matching and Contribution Limits
12:16 Overcoming Challenges in Mega Backdoor Roth IRA
13:28 Requirements for In-Service Distributions
14:16 Severance and Rollovers in Mega Backdoor Roth IRA
14:36 Conclusion: Optimizing Retirement Savings
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Disclaimer:
This video discusses fixed-income investing and utilizes the 10-year U.S. treasury as a general representative fixed-income investment. Conclusions reached, opinions stated, and downside risks and potential returns presented should not be construed as applying to other types of bonds or fixed-income assets. Other types of fixed-income products carry different levels of risk and return potential and should be evaluated as an element of a diversified portfolio with your specific risk tolerance, investment objectives, and timeline in mind. Nothing in this video is investment advice, an investment recommendation, or an offer to buy or sell any security. Investing involves risk.

[@pstratt1294]

Thanks Troy, this was very helpful. I’ve been trying to understand the mega back door for years!

[@SS-qr5qk]

I’m guessing the pro rata rule applies to an existing Sep IRA, and opening a traditional IRA as a pass through vehicle for the ROTH? Thank you!

[@marknettvictoria6870]

Hello does the pro-rata rule apply to the mega backdoor roth ira?

[@terrykarras5598]

Troy, one question and one comment. Q. It was my understanding that the max into a 401(k) was $76,500 for those over 50 ($69,000 + $7,500). Am I mistaken? C. Even if your 401(k) plan doesn't allow for in-service distributions, it may allow for "in-plan conversions", which would allow you to immediately convert the after-tax funds into the Roth portion of your 401(k), avoiding that taxable growth from the after-tax funds. Thanks for the great content!

[@99evets]

I believe it is $76,500 as well.

[@OakHarvestFinancialGroup]

You are correct, I forgot to include the catch up contribution for 401k participants over the age of 50. Thanks for catching that!

[@snatraps99]

Hi there. Thanks for the info. I can't do a Roth or a backdoor Roth, so I am trying to do a Mega. My employer plan permits aftertax contributions into the 401K and permits 2 in-service conversions annually. My plan was to make aftertax contributions every paycheck into the 401K and then twice a year transfer the contributions into a Roth IRA and the growth into a traditional IRA. However, after watching your video, it seems I could avoid the two IRAs and convert the contributions into my company's Roth 401k? Will this not affect my max of $23K into the 401K? I want to continue to max that out while also doing a mega backdoor Roth taking advantage of both tax saving strategies (now and later). Thanks!

[@theprovenway2950]

Great information!

[@OakHarvestFinancialGroup]

Thanks, glad it was helpful!

[@mikeg2538]

Question. If you are 50 with $4 million invested having 50% in etfs based on broad indexes (Dow, Spy, Nasdaq) and 50% money market. Is this $ enough to retire? I rent a 2 bedroom apartment, no debt, no kids. I also ask because I have slight back pain sitting at PC 8 hours a day. I wonder how long I can endure it. I anticipate 6% returns but the past 30 years seem like a rosey picture. I also have 0 pension. Thanks.