Mega Backdoor Roth
RetirementGlossary term
Definition
An advanced strategy allowing after-tax contributions to a 401(k) beyond the standard limit, then converting those funds to a Roth IRA or Roth 401(k). Not all employer plans allow this, but it can enable significantly higher Roth contributions each year.
Related terms
- Backdoor Roth IRAA strategy that allows high-income earners who exceed Roth IRA income limits to contribute by first making a non-deductible contribution to a traditional IRA, then converting it to a Roth. The pro-rata rule may cause partial taxation if other traditional IRA funds exist.
- Roth ConversionThe process of moving money from a traditional IRA or 401(k) to a Roth IRA, paying income taxes on the converted amount in the year of conversion. This strategy can be advantageous when you expect to be in a higher tax bracket in retirement.
- 401(k)A tax-advantaged retirement savings plan offered by employers that allows employees to contribute a portion of their salary before taxes. Many employers offer matching contributions up to a certain percentage.
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