If you are maxing out your regular 401(k) deferrals, making annual “backdoor” Roth IRA contributions, and still have additional funds to be put away for retirement, then making after-tax “mega backdoor” Roth 401(k) deferrals could be your next savings step. Those contributions can be incredibly impactful in helping you arrive at retirement with a large tax-free account.
In a perfect world you would arrive at retirement with both pre-tax (such as traditional 401(k)s and IRAs) and post-tax (Roth 401(k)s and Roth IRAs) retirement accounts to allow for tax bracket optimization and wider tax planning opportunities. Let’s take a look at the difference between traditional and Roth IRAs, and see how you can contribute to a Roth IRA even when you are over the income limits.
For those who expect to have at least one low-income year, a roth conversion could make a lot of sense. A roth conversion could be a way to get the best of both worlds with retirement accounts. If you’re retiring early or quitting your job to launch a company, raise a family, or travel then this post is for you.
