Mega Roth IRA: What It Is And How It Can Work For You!
Mega Roth IRA: Simplified
Roth IRA's have been a popular topic as of late. For a long time, it was an unspoken secret used by
retirement planners. However, the IRS released guidance that specifically addressed both backdoor
Roth IRA conversions, and the so-called Mega Roth IRA. As a result, it has gained even more
traction and interest.
What is the Mega Roth IRA?
The Mega Roth IRA allows you to contribute an additional $37,500 into an Roth IRA by leveraging
the fact that some employer 401k plans allow after-tax contributions up to the current limit of
$57,000. A Mega Roth IRA is a means for investors who earn too much to use a "backdoor" method
to contribute to a Roth IRA. This generally involves making an after-tax contribution to a traditional
IRA account, then converting some or all of the money in the account to a Roth IRA. This conversion
may or may not be taxable, all or in part, depending upon the mix of pre- and post-tax dollars in the
account. The annual IRA contributions are limited to $6,000, and $7,000 for those who are over 50.
A mega backdoor Roth takes this even further. The limits for 2020 are $19,500 and $26,000,
How Can the Mega Roth IRA Can Benefit You?
The Mega Roth IRA is a potential tool to maximize tax savings. This strategy is for people who are
maximizing their savings in other avenues first: 401k, IRA, HSAs, 529s. It also works well for people
who are looking to make early withdrawals from their IRA or 401k. If you still need or want more tax
sheltered savings, then this is potentially a great strategy if your employer allows it. This tactic
should be considered after you've maxed out other tax-deferred savings vehicles such as: Employee
contributions to your 401(k), contributions to an IRA in the most appropriate format for your situation,
an HSA account if you have access to a high-deductible health insurance plan that meets the
criteria, and a 529 or other college savings plan if you have children.