ST. CROIX INSIGHTS
The Mega-Backdoor Roth Strategy: Supercharge Your 401(k)
Open enrollment is currently taking place at many companies. You have the opportunity to make changes to your employer-sponsored benefit plans, such as group life insurance, health insurance, and retirement contributions. Overall, it’s an important time to review your current financial circumstances and ensure your benefits align with your needs and goals.
Max Out Your Savings Potential
For the 2025 tax year, the standard maximum contribution to your 401(k) is $23,500 (or $31,000 if you’re 50 or older). But what if you want to save more? High earners, take note: the mega-backdoor Roth strategy might be the boost you’re looking for to supercharge your retirement savings.
What is the mega-backdoor Roth strategy?
While the mega-backdoor Roth strategy sounds like a football play meant to confuse your opponent, it’s actually a legal way to supercharge your retirement savings. This three-part strategy allows you to contribute up to $70,000 into your 401(k) rather than the “maximum” of $23,500.
Note: Even if your employer’s open enrollment season is over, most companies allow you to make changes to your 401(k) contributions at any time. Check with your HR department.
Here is what you need to do to take advantage of the mega-backdoor Roth:
- Make sure your company 401(k) plan allows for after-tax contributions.
- Make sure your 401(k) provider allows after-tax contributions to be converted into a Roth.
- Max out your allowable 401(k) contributions (in 2025, $23,500 or $31,000 if you’re 50 or older).
- Decide how much more of your paycheck you want to go into the 401(k) as after-tax contributions (maximum total is $70,000 or $77,500 if you’re 50 or older).
- Convert the after-tax contributions to Roth status.
Why consider a mega-backdoor roth?
Unless you’re retiring tomorrow, you don’t know what the taxes will be like when you’re ready to retire. Roths can be a proactive safety measure since you aren’t taxed when you withdraw from the account.
- Tax-Free Growth: Earnings in a Roth 401(k) grow tax-free, and qualified withdrawals are also tax-free.
- No Income Limits: Unlike a Roth IRA, there are no income restrictions on who can contribute, making this a valuable tool for high earners.
- Future Tax Flexibility: Since tax rates in retirement are uncertain, having a tax-free source of income can provide financial security and flexibility.
It’s best to consult with a tax professional prior to taking advantage of the mega-backdoor Roth. You don’t want to accidentally contribute too much to your 401(k) and risk costly penalties from the IRS, yet chances are your 401(k) provider will catch it.
With open enrollment season in motion, it’s never been a better time to evaluate your retirement plan. Want to review your financial plan together? Reach out and let’s talk.
Open enrollment is currently taking place at many companies. You have the opportunity to make changes to your employer-sponsored benefit plans, such as group life insurance, health insurance, and retirement contributions. Overall, it’s an important time to review your current financial circumstances and ensure your benefits align with your needs and goals.
Max Out Your Savings Potential
For the 2025 tax year, the standard maximum contribution to your 401(k) is $23,500 (or $31,000 if you’re 50 or older). But what if you want to save more? High earners, take note: the mega-backdoor Roth strategy might be the boost you’re looking for to supercharge your retirement savings.
What is the mega-backdoor Roth strategy?
While the mega-backdoor Roth strategy sounds like a football play meant to confuse your opponent, it’s actually a legal way to supercharge your retirement savings. This three-part strategy allows you to contribute up to $70,000 into your 401(k) rather than the “maximum” of $23,500.
Note: Even if your employer’s open enrollment season is over, most companies allow you to make changes to your 401(k) contributions at any time. Check with your HR department.
Here is what you need to do to take advantage of the mega-backdoor Roth:
- Make sure your company 401(k) plan allows for after-tax contributions.
- Make sure your 401(k) provider allows after-tax contributions to be converted into a Roth.
- Max out your allowable 401(k) contributions (in 2025, $23,500 or $31,000 if you’re 50 or older).
- Decide how much more of your paycheck you want to go into the 401(k) as after-tax contributions (maximum total is $70,000 or $77,500 if you’re 50 or older).
- Convert the after-tax contributions to Roth status.
Why consider a mega-backdoor roth?
Unless you’re retiring tomorrow, you don’t know what the taxes will be like when you’re ready to retire. Roths can be a proactive safety measure since you aren’t taxed when you withdraw from the account.
- Tax-Free Growth: Earnings in a Roth 401(k) grow tax-free, and qualified withdrawals are also tax-free.
- No Income Limits: Unlike a Roth IRA, there are no income restrictions on who can contribute, making this a valuable tool for high earners.
- Future Tax Flexibility: Since tax rates in retirement are uncertain, having a tax-free source of income can provide financial security and flexibility.
It’s best to consult with a tax professional prior to taking advantage of the mega-backdoor Roth. You don’t want to accidentally contribute too much to your 401(k) and risk costly penalties from the IRS, yet chances are your 401(k) provider will catch it.
With open enrollment season in motion, it’s never been a better time to evaluate your retirement plan. Want to review your financial plan together? Reach out and let’s talk.