Here’s a strategy, ideal for successful small business owners, for maxing out Roth contributions when you’ve hit your limit on a traditional backdoor Roth.
As a reminder, a backdoor Roth is when you contribute to a traditional IRA and then convert that into a Roth.
Here, a mega backdoor Roth is when you contribute to a 401k and convert it to a Roth.
How it Works
- High earners hit the limit on Roth IRAs quickly. Traditional 401k plans have contribution limits that many high earners can’t max out (23k per person, 69k inclusive of employer match)
- Mega Backdoor Roth is a strategy to bypass Roth IRA income limits by making after-tax contributions to a 401k and then converting them to a Roth IRA.
- Eligibility: Check if your employer’s plan allows after-tax contributions and conversions. Solo 401ks are another option.
- Significantly increase Roth IRA contributions, potentially up to $138k annually for a couple.
- Considerations: Requires sufficient income, immediate conversion is ideal to minimize taxes, and careful planning is necessary. Use a CPA if you’re at this level.
Who Should Ideally Do This
This is not a realistic plan for most people, but if you (1) own your own business, and (2) can employ your spouse and have them put 100% of their income as Roth contribution, then it’s lowkey brilliant. In that case, you may not even have to do the strategy yourself.
Your spouse has to actually work in the business though or else this is fraud, FYI.
