What is a MEGA BACKDOOR ROTH IRA contribution?

[@bollyfan1330]

There is a third option you are missing. The employer can allow for in-service in-plan ROTH rollover. Meaning money can go from an "After-Tax 401(K) account" to a "ROTH rollover 401(K) account" both accounts being within the 401(K) at the employer.

[@WillPeterson]

You're absolutely right! I wasn't aware of this when I made the video, but I subsequently made a follow-up: kzbin.info/www/bejne/fqS9dKSqh811fLM

[@0Camus0]

So, this means that you don't need an IRA, right?

[@talanky]

Fantastic explanation of a seemingly complicated mechanic that you make really simple. I especially like how you explain how to practically do it instead of just the theory, that part is left out in so many articles!

[@WillPeterson]

Thank you! That's high praise! Let me know if there's anything else I can help explain!

[@dsmith4140]

You were the one who explained this on here four years ago and I’ve been doing it ever since. Thanks.

[@WillPeterson]

I'm really happy it's been helpful. In the description I have a link to a follow-up video I made, that might make things even easier for you. Thanks for watching!

[@vmanshooting]

this is the best explanation of the mega backdoor roth ira. thanks

[@jeanp.5929]

I'm most likely never going to do this but I'm glad I learned about it. KZbin University. I never want to graduate.

[@krizh289]

Just got my first job at 20 that'll be paying me a boatload of money (I plan on maxing out all my retirement accounts early so I can get that delicious compounding) and the visual animations here were super useful to understand.

[@afriendabroad2083]

Excellent- I started doing this and was surprised by how Wells Fargo customer support couldn’t understand what I wanted to do but very good idea at the end to write out instructions to the receiver

[@WillPeterson]

Yeah I've found it's really "hit or miss" with the customer support staff. Some people instantly understand what you are trying to do, other's don't get it

[@paterjo8561]

This was a great video that clearly walks through the benefits of the backdoor Roth and you also walk through the steps to make it happen. Many of the other videos on the same subject talk about the benefits but don't walk you through the steps to make it happen and just refer you to the video owner for paid advice. Thanks for this excellent video!

[@russellthompson2146]

Ya man, good job. Complicated subject explained well and easy to understand. Thanks man!!

[@jonahum92]

This is by far the best explanation I have seen! Thanks!

[@adamrichardson6918]

Great to see other millennials doing this! Only difference for me is I just pay income tax on the earnings and convert them to Roth, this way I can still do the "back door ira to roth" conversion as well.

[@ronandervin9803]

I've been struggling to get my head around this. Watched multiple videos but this is by far the best and easiest to understand!! Thanks!!

[@WillPeterson]

I'm Really glad to hear that Ronan! Cheers!

[@SomeIndoGuy]

this video is really usefull and may I add that the bar chart visualization really works in explaining the concepts, good job

[@crazy4beatles]

Fab explanation. Crossing my fingers my 403(b) plan allows for it.

[@shinepushpanful]

This was the most easy to understand explanation of mega backdoor Roth. Great job

[@jj7958]

I do the traditional 401K with my company and a Roth IRA. I'm putting in the max for both of those and that is already taking a pretty big chunk of my current income, which is a good thing since I am young and it can grow overtime. Maybe it depends on how much you are making and what your income goals are in life, but with the two investment accounts I have, I think that is more than enough for the average person. If you are maxing that out for however long you can for both accounts and if you are putting in as much as you can after that, you'll probably be living very comfortably in retirement or whenever you decide to take that money out, if you start pretty young to let it grow. Good video too and is good information to have for those who want to save even more money in life. 👌🏼

[@WilliamSurles]

thank you. this was the best, most simple, most clear and to the point explanation of what this is. It was perfect.

[@mikew.2016]

I have been dollar cost averaging into my trad IRA for several years and converting the full balance to Roth. Your video helped me figure out I have been doing it wrong, dang! It looks like I will need to pay tax on the trad earnings or contribute one lump sum. Bummer!

[@megalomaniac7972]

Thanks for making this! The visuals really helped me understand this. My company just added that we can convert pre-tax 401k dollars to roth..so I think I can finally use this approach.

[@AniqueAkhtar]

I think you should not touch your pretax 401k. Only convert your after-tax 401k into either a Roth 401k or Roth IRA account.

[@i-chunhuang8413]

I am just writing to say thank you. You made it simple and clear to understand!

[@flvyu]

I need to watch this a few more times

[@WillPeterson]

Let me know if there's anything I can help explain!

[@stevencanden2911]

This explanation is incredible. Hats off to you, sir.

[@ninumedia]

Your explanation of this topic was absolutely the most detailed and helpful! Thank you so much!

[@JayAbreu12]

Amazing work, the visuals truly helps. Thank you very much

[@WillPeterson]

Glad it was helpful!

[@SriRam-yq4id]

Excellent video Will and thanks for sharing your knowledge.

[@Fubbles62]

Best information on this topic that I’ve seen. Thank you for the clear explanation.

[@SG-vb5se]

This it THE BEST explanation on the mega backdoor mechanics

[@fredwang2004]

Very clear explanation , calling my 401k administrator tomorrow

[@WillPeterson]

Although all the information in this video is still accurate, I've created a NEW video which improves the mega backdoor strategy and explains how I do it a bit differently now! kzbin.info/www/bejne/fqS9dKSqh811fLM

[@VictorTheHan]

7:09 when you convert from traditional 401k to Roth IRA you still need to pay taxes for what you are converting.

[@Positive_commenter]

It's not coming from traditional. It's after tax, this already taxed so only gains are taxes.

[@tpolly480]

Earnings on after tax accounts converted to a Roth IRA is a taxable event.

[@osalas36]

Bro, your videos are awesome!!!!! Love the graphics, way easier to visualize

[@WillPeterson]

Thanks dude! I appreciate it.

[@ttsupra87]

It is not very often that my mind is blown I was clueless about what I just watched sweet Jesus! So a little sketchy on specifics but now I gotta do some more research

[@WillPeterson]

no worries dude this stuff is overwhelming if you jump right into it. Keep reading and lmk if you have any questions!

[@Juan_Hernandez_Jr.]

Sounds great, I just don't understand. I'll watch again. Thanks!

[@fitybux4664]

Tell your employer you want to do mega backdoor roth IRA (or don't...) with their 401k. (In reality you just want to ask about the attributes of their 401k. Does their 401k allow after-tax contributions and in-service distributions?) If things are not compatible, tell them you want to work as a 1099 contractor for them instead of W-2, (if you have a close relationship with them they might agree) direct the 1099 to the EIN of a new company that you create / own / work for, then open a Solo 401k and push every penny of money (~$58k max) into that for retirement. (Bonus points if you get to double the mega roth IRA if you have a spouse and if he/she participates in the business.) Then, push that all into a Roth IRA and make massive returns. I'll meet you on your yacht. Beginner hint: Once you go the 1099 route, it will affect your credit and ability to purchase large ticket items like mortgages and cars.

[@JessieOpportunityCostInvesting]

Hey Will! Knock out video bro. I'm guessing this doesn't apply for the tsp but it's certainly a very valuable tool to look into and if nothing else, have in our toolbox. Thanks for sharing! I'm subscribing and binging more content!

[@WillPeterson]

Thanks Jessie! I really appreciate the feedback!

[@tpolly480]

6:40 Roth earnings are only tax free IF it’s in an ira for 5 years or more AND you’re 59.5.

[@Chris-py3ec]

Just found out employer offers this. Thank you!!!

[@WillPeterson]

Fantastic! One of the lucky few!

[@maggiesadventure365]

Do you know if the Mega Backdoor Roth is subject to the Pro-Rata Rule as well?

[@chihiroa1045]

Most clear video on this subject! Thank you.

[@michaelparker3188]

Thank you! You are the man. 😎

[@loatyty]

Why don't you open roth IRA with fidelity. If you do, can they transfer from 401 to roth within Fidelity?

[@michaelgriffin7889]

Great video! Thank you for such a clear explanation, as well as providing an actual example of the letter. I’m in the same boat with my 401k at Fidelity and Roth IRA at Vanguard, so was wondering how to do this.

[@michaelgriffin7889]

Aaaaand just watched your most recent video on this...even easier!

[@chriskoch99]

This is by far the best video I've seen on the topic -- thanks! One question. If we assume the person doing this is a high-income earner who can't otherwise contribute to a Roth, would it then work to also subsequently convert that IRA (with the earnings from the after-tax non-Roth funds) into their backdoor / mega-backdoor Roth IRA? Or is that too devious lol... surely they have to get their tax on the earnings somewhere.

[@WillPeterson]

Converting the (untaxed so far) earnings in the tIRA into a Roth IRA would be a taxable event. That year you would be taxed on the amount of the conversion. If that's what you want, then you actually can simplify this whole process. Just roll the WHOLE amount from your afer-tax 401k (contributions + earnings) directly to the Roth IRA. You'll be taxed on the earnings (just as if you had done what you suggested: first sent the earnings to a tIRA, then converted them to Roth) I'm glad you found it useful!

[@hendrikvanderzandt1899]

I imagine that you could use the Roth conversion ladder later on though to roll your tIRA funds (incl. the untaxed earnings) into a Roth IRA account when your income that year is low enough that you would effectively not pay any taxes on those conversions and then wait 5 years for the money in the Roth to season before withdrawing tax free.

[@escargot8854]

best explanation I've heard. thanks for sharing

[@thegaryliao]

Best mega backdoor explanation wearing in tank ever! lol Thanks a million! Just out of curiosity, why you made $2,623 check only when you can contribute additional up to $30K? Wouldn't it be easier just rollover a big lump sum to Roth IRA before filing tax report? Or does that contribution need to stay in 401k for a while, so you transfer a portion of it once in a while?

[@WillPeterson]

Hey Gary! Two reasons one might do this: 1. My guess at that time, It took me to november or so to fill up my pre-tax $19000 bucket, and based on my budget I could only afford another $2,500 that year. So that's all the money that was in the after-tax account. 2. doing smaller, more frequent conversions minimizes the amount of taxable earnings accrued before you convert to Roth. If you haven't seen it yet, i just published a new video on this topic yesterday! check the pinned comment.

[@Uncleflyngfester]

Will great video. I have a question. My company offers a 16% match whether I contribute or not. So the companies portion is 37k or so. Can I contribute to this 401a before I contribute to my own portion (19.5/ 26k)? Basically, do the “ Mega” portion first then fall back the remainder of the year on my contribution. Basically, helping the company pay that 37k as fast as possible because the portion I pay can go into the Roth. The portion the company pays (of the 37k) can not. My goal is to put 75% of my pay check Jan/ feb and pay off that 37k as fast as possible. Hopefully, by the end of February. So do I have to put my portion first or in conjunction with the 401a portion? Thx

[@deejaydres]

Thanks for the video! Great info! 2 quick questions. Can you do this after you have maxed out your Roth IRA contributions? Second, is the additional 30k you can put into the 401k coming from cash? Or it has to be deducted from your paycheck? Thanks again!

[@WillPeterson]

1. Yes, no problem. 2. Has to come from paycheck deductions! Good questions.

[@Krazylion10]

First video I watch for you, and I am subscribing. Very helpful method described!

[@YubaaNYC]

Hi Will, this is such a good information for everyone. Thank you 🙏 so much for your efforts.

[@SunalMittal]

Thanks Will, this was a great explanation. Could you share a way to automate this transfer between fidelity and vanguard? In my case it’s fidelity and Chase. I’m wondering if I should open a second IRA account with fidelity for these rollover contributions and maintain Chase IRA for my own contributions. I am not sure if that would have any tax complications.

[@WillPeterson]

Unfortunately I don't think there's any way to automate it when you are dealing with two different providers. Your idea of opening a new IRA with fidelity is fine, and will probably eliminate the need for paper checks. Also check out my most recent video which offers some new advice on the mega backdoor Roth: kzbin.info/www/bejne/fqS9dKSqh811fLM

[@cl88888]

Great video! What happens if one has an existing traditional IRA account with some $? Will one be subjected to pro rata for the after-tax $? Thanks!

[@WillPeterson]

Nope! since the mega backdoor strategy doesn't ever involve money flowing through a traditional (pre-tax) IRA. (Money goes straight from after-tax 401k to Roth IRA or Roth 401k)

[@cl88888]

Thx Will!

[@IkeOzurumba]

This is a FANTASTICALLY explained video on this subject. Thanks!

[@aromo4800]

Can you also do a regular back door roth (6K in a traditional IRA and rolled into a Roth IRA)

[@stevenmorris2736]

Great video man. As you can see I am 1 ½ year's late to the game and still found your video the BEST mega back door explanation around. I have been looking for weeks! 1 Question and 2 Video recommendations. Question: In the video, you keep mentioning “immediately” doing the transfer and then say “same year”. I don’t know if employers allow this every paycheck, but my company only allows in-service every 6 months. Therefore, my question is: 1) Since I can’t do immediately (6-month situation) would it be best to this in January for the prior year? So do the process in January 2020 for all the contributions saved Jan-Dec 2019? Or if the next year isn't possible, would late December be the only time someone is able to do this for funds saved Jan-Dec since you kept mentioning same year? Video Recommendations: 1) Roth Conversion Ladder 2) SEPP 72(t) Distributions

[@WillPeterson]

You could absolutely do it January the following year! The only reason I keep saying "immediately" or "the same year" is because ideally you want to move that money into the Roth ASAP, where all the gains will be tax free. Any gains you make while it still sits in the after-tax 401k are taxable. But the difference between a week and 6 mo or a year probably doesn't matter all that much! I usually do 2 a year: one after my bonus hits in March (25% of which I send to my after tax 401k) , and the other in January the following like you describe. Also thanks for the video ideas! I think I'll definitely take you up on that!

[@stevenmorris2736]

@@WillPeterson thanks man. Solid feedback.

[@WillPeterson]

Hey dude just wanted to say thanks for the idea on the Conversion Ladder video. Just finished it and uploaded it!

[@DurgaGaneshReddy]

Once we rollover into a Roth IRA & let's say I needed the money to be taken out. Is there a minimum wait time after which I can pull out the original contributions penalty-free? (ex. 5 years in Roth conversion ladder approach) Thanks.

[@macornman]

Clear, concise, perfect

[@EoeSantinny]

Great video! didn't know this strategy existed. job well done!

[@christychan337]

Thank you Will Peterson! You are the best! I finally got it.

[@fulefunk]

Can you roll-over from a Solo (Self-Directed) traditional 401k w/ max contribution of 57k in 2020 to a Roth IRA? If so, how is this done and what portion can be rolled over?

[@4BAMA10]

Awesome advice, I had no idea this was possible!

[@medinanetwork]

Gracias for the explanation, very straight forward.

[@Dgeraci85100]

My company only offers a Roth 401(k), which is an after-tax employer based retirement account... when I asked my plan administrator if a non-roth 401(k) is offered. He was unfamiliar with that type of account. Would it be possible to do the MBDR conversion with an after-tax Roth 401(k) into an IRA?

[@jerryeisner1]

I love the topic. I"m trying to understand it. Can you do the same talk going slower with more examples. I'm extremely interested but could not follow or understand even though you did a fantastic job. There is just to much information going by me too quickly. I suppose lots of others are in the same category as me.

[@javajava8856]

Slow down the play back speed

[@ryants1]

I make more than the allowed amount for regular Roth IRA contributions. Would a Roth 401k be the next best option for me? I max out my regular 401k quickly

[@jayviz]

Very well-illustrated video, but could you please point me to your source for the Total Contribution Limit of $54,000. For Tx Yr 2019, every site I go to says 19K + 6K catchup.

[@bradknox]

Rewatch from 2:35 to 3:42 to answer your question. The 19K you refer to is 18K in this video (from 2017).

[@impmegaman]

See the IRS website here on overall limits. Looks like it's $57,000 for 2019 now: www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

[@sujaykadam99]

Do I need to max out my 401k contributions to be able to contribute to a after tax, non roth bucket?

[@Paxevo]

What if I wish to not transfer gains from the after tax non Roth contribution to a traditional IRA. I make non deductible traditional IRA Contributions and perform a Roth conversion (back door roth) each year. I don’t want to run afoul of pro rata rules. Can I simply take the $76 (in your example) as a distribution and pay marginal tax rates in the current year?

[@WillPeterson]

In that case it'd be best to just roll the gains right into the Roth (with all the contributions), and pay marginal income tax on just the gains.

[@Cenlalowell]

You still have to pay state and federal income tax on this money ??

[@fortgrove3166]

With my company 401k, it defaulted to traditional but I was able to convert it to a Roth, so now it’s a Roth 401k.

[@6040adam]

Man.. I love all of your video's.. you should piggy back off your credit card videos and make a video about using a HELOC to pay off debt.. specifically mortgage

[@rajukamal]

Very useful. Thanks for your efforts

[@manp1039]

I have a related question, sort of. I created a t-IRA account and funded it with 7k (im over 50) and realised a few days ago, this is not as good an option as funding a Roth IRA. Can I fix this? I am not clear what to do. my traditional ira has only gained in dividends and share price increases about 6 or 7 hundred in my estimation. I have already (yesturday) created a new Roth IRA with the same financial institution and converted the T-IRA funds into an Roth IRA. I am very worried about what will happen. It is not as clear as if i just created the ROth IRA and funded it straight away. I have not contributed any additional funds into any IRA accts for 2019. Your thoughts?

[@samia1000]

Incredible explanation! Really easy to follow. Thanks! Subscribed.

[@jorgepvenegas]

I finally understood this thing!

[@WillPeterson]

Yay! Glad I could help

[@yawboachie-adjei3016]

Do you need to roll this money over to the "Backdoor" Roth with every pay period? Sounds like it woudl entails requesting and check, and writing a letter twice a month. Thanks

[@polynomialxyz]

Will rolling over after tax 401k earnings to IRA cause any issues while doing yearly IRA to Roth IRA (backdoor) conversion?

[@onlywatch99]

Hello, My plan allows a "Roth In-Plan conversion" and our 401(k) is managed by Fidelity. Is there a reason for me to move this to my Roth IRA at Vanguard versus leaving this at Fidelity in this "Roth In-Plan Conversion" account? Thank you!

[@alfredomarquez1485]

Can you do 100% after tax for everything? I currently do 100% after tax contributions to my first bucket ($22,500 for 2023). Or is it a requirement to use pretax for the first bucket to take advantage of this? I figure $22,500 after tax + contributions + more after tax is better

[@IChowdhury01]

Would this be better / high priority than investing money in a taxable brokerage account?

[@JawadEssani]

Can you do both Mega back door using after tax 401k non roth and simple back door ? For example $6000 for 2020 and also using employers after tax non Roth 401k ?

[@WillPeterson]

Yes, absolutely!

[@JawadEssani]

Thanks Does pro rata rule apply to mega back door if you have sep ira?

[@willfindjr]

Thanks for making this great video. What's the 2020 federal limit for Backdoor Roth IRA contribution?.. having difficulty finding it.

[@WillPeterson]

$6000 for under age 50. There's no distinct limit for backdoor contributions, the limit on regular IRA contributions is what applies (since the first step of the backdoor is contribution to a regular IRA, which you happen to not take a deduction for).

[@haifenghe]

I already have a solo 401k with TD Ameritrade, which does not allow after tax contribution. Now, if I go with one of the provider that allows now (already 2020), open an account and transfer all assets over. Would I be able to make “after tax” contribution for 2019? Am I too late for the 2019 Mega backdoor roth? Thanks much!

[@manp1039]

with a HSA. It was my understanding that you can only put money in for the year you are goin g to use it. And if you don't use it in that year, you lose it if you don't use it towards medical expenses in that year. Has the rules changes? Is it more like an IRA now where you can contribute upt to 3k per year and you can let it set till you need to use it compounding in investments?

[@Pangea100]

Since the pre-tax and after-tax contributions are both held in the same 401(k) account, can you show the math around how the earnings number on the after-tax contribution was calculated?

[@generalfeed123]

just remember to not only type “mega backdoor” when searching for ira information

[@xinmindeng1530]

There is maximum income limits for Roth IRA and also limits for IRA contribution late on backdoor convert to Roth IRA?

[@markstone6263]

Great video, thanks! Now any advice for getting my company to start allowing this lol.

[@WillPeterson]

Ha! I wish I could help with that! Maybe this is useful: www.bogleheads.org/wiki/How_to_campaign_for_a_better_401(k)_plan

[@allrightythan]

Ditto

[@notreallyme425]

Some companies allow this to be done automatically if they have a Roth 401k option. So if you’re already maxing out your regular 401k contributions you can make an extra “after tax” contribution and immediately roll it over to the Roth 401k in the plan. Immediately being the same day so there’s no gains or losses to contend with on the rollover. The company’s plan has to allow this and usually has a company managing it that can support it - Fidelity actually promotes this to their clients and offers it for the plans they manage.

[@WillPeterson]

Right on! In fact I just discovered this and made a more recent video about it 😂

[@ryants1]

I make more than the allowed amount for regular Roth IRA contributions. Would this be the next best option for me? I max out my 401k quickly

[@Ma89644]

Best explanation ever.

[@ellaenchanting333]

My husband passed away. I inherited both if his IRAs (traditional and Roth). My question is should I assume the accounts and rollover the funds to my own IRA's? Or should I keep it as inherited accounts managed by Vanguard? The difference in fees is 0.15 (my own) and 0.45 ( inherited). Do you provide personal and individual services as a CFP? How can I contact you?

[@DamaniJones]

Still the best video on this out there.

[@WillPeterson]

Haha thanks!

[@xochimahuac]

I'd like to learn more about using an HSA for saving for retirement. Do you already have a video about that? If not, can you make one?

[@WillPeterson]

Love that idea! It's on my list now!

[@nararakesh1]

Good explanation Will, it helps. Here is my suggestion : if you explain something like when you can withdraw the money with penalty and without penalty from different accounts, that would be cool.

[@clmp8758]

Great video! Do I have to max out the first 19k (in 2019) before I can contribute after tax/non-Roth $?

[@WillPeterson]

Nope. after tax non-roth money can go in at any time of the year!

[@MzRobinWiggins]

That’s a phenomenal explanation

[@LuisAlfonsoGarciaSegundo]

Hi Will, why I need to do the mega Roth the same year? Is that a rule or a suggestion? I had contributed after tax to my employer plan a few of years ago (2017-18) now I know I can do the In-service distribution and split the money between the Roth IRA (post tax contributions) and the traditional IRA for all my earnings. Please help

[@williamkim1460]

Thank you for the video. Are you allowed to do this if you are also doing backdoor Roth IRA using traditional IRA conversion into Roth IRA?

[@WillPeterson]

Yes, no problems with that.

[@williamkim1460]

@@WillPeterson Thank you. But if you are trying to do traditional IRA conversion into Roth IRA, don't I have to have 0 balance in Traditional IRA? If so, where can I transfer the earnings from the Roth 401k?

[@WillPeterson]

@@williamkim1460 go ahead and transfer everything in your after tax 401k to a Roth IRA. Yes, you'll have to pay taxes on the portion of that amount that is earnings, but that's OK. That will keep your tIRA empty

[@williamkim1460]

@@WillPeterson Thank you! That clarifies it. But just to confirm, am I understanding correctly regarding the backdoor Roth requiring empty Traditional IRA? Once again, thanks for taking your time to reply. Subscribed!

[@WillPeterson]

@@williamkim1460 no problem! Check out my most recent video on the pro rata rule, it discusses this very thing!

[@louiebeene5762]

How is the MEGA different from Backdoor Roth. And also, what is the after tax (non deductible) contribution limit for 2020 and 2021. Also, the is no income limit?, please confirm. Please help. Thanks

[@WillPeterson]

Maybe I'll make a video on that exact topic. Long story short: Backdoor Roth: a strategy to bypass income limits allowing you to make your $6000 annual contribution into Roth IRA despite making too much Mega Backdoor Roth: a strategy to contribute even more than $19,500 annual limit on employer 401ks, and get that extra money into a Roth IRA or 401k

[@MiralkumarPatel]

Doesn't the IRA contribution income limit apply in rolling over to Roth IRA or Traditional IRA?

[@initialb811]

This was great. Do you think you might do an updated 2020/2021 video? Subscribing!

[@WillPeterson]

Done! kzbin.info/www/bejne/fqS9dKSqh811fLM

[@initialb811]

@@WillPeterson THANK YOU!

[@jeajea]

My plan allows my after-tax, non- roth contributions to either be converted to Roth 401k or rolled over to Roth IRA. Is there a benefit to rolling over into one or the other?