Posted by Joe Wride
In certain cases, you may be eligible to make a Mega Backdoor Roth IRA contribution. At a high level, this involves making a non-Roth, after-tax contribution to your 401(k), then rolling it out of the 401(k) into a Roth IRA. Under the right circumstances, this can allow you to contribute tens of thousands of dollars into a Roth IRA. However, the rules are very restrictive and prohibitive for most people, and can be difficult to navigate.
To help make the analysis easier, we have created the “Can I Make A Mega Backdoor Roth IRA Contribution?” flowchart. It addresses some of the most common issues that arise when trying to make a Mega Backdoor Roth IRA contribution. This flowchart considers:
- The maximum amount that can be contributed
- The impact of the ACP test
- 401(k) plan-specific features providing in-service distributions and/or separate accounts
- The tax impact upon rollover
- The step-by-step process to complete this kind of contribution