Ever Hear About a Megabackdoor Roth or After-Tax Contributions to Your 401(k)? It Could be the Key to Boosting Your Retirement Savings

Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

Published by Taylor Financial Group

As the quarter comes to an end, many people look at the balance in their retirement account and wonder why they haven’t saved more. We have discussed many times that making regular contributions to an IRA or 401(k) Plan can help people meet long-term financial goals.

However, if you are lucky enough to have an employer sponsored plan with a provision that allows after-tax contributions, then a Megabackdoor Roth could be the answer to boosting your retirement account.

Based on the 2018 IRS Guidelines and depending on what your employer contributes to your account, you could potentially contribute your initial $18,500 (+$6,000 in catch up contributions) plus $36,500 more every year in after-tax contributions for a total of $61,000 in your 401(k).

After-tax contributions are like Roth contributions in that both are made with after-tax money and the contributions are allowed to grow tax-free. At retirement, you can roll over all of these after-tax contributions to a Roth IRA, but all interest made on after-tax contributions will be taxed upon withdrawal.

The total 401(k) contribution limit for 2018 is $55,000 (plus a $6,000 catch up contribution). To figure out how much more you could potentially contribute with after-tax contributions, subtract your pre-tax or Roth contributions and your employer contributions from $55,000.  Example: $55,000 – $18,500 – $2,500 = $34,000, but don’t forget the $6,000 catch up contributions if you are 50 and over.

While this strategy may seem like an effective way to save for retirement, only about 12% of 401(k) participants contribute the $18,500 maximum.

If you have the financial capacity to take advantage of this technique, speak to human resources to make sure your plan allows after-tax contributions and in-service distributions and make your retirement savings account surge!

As always, if you have any questions or want to discuss your retirement savings, give us a call.

 

 

Share:
facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.
Share Post: facebook Created with Sketch. twitter Created with Sketch. linkedin Created with Sketch. mail Created with Sketch. print Created with Sketch.

RECENT POSTS

Your Silicon Valley Bank Questions Answered

You likely have heard about the recent Silicon Valley Bank (SVB) collapse and probably have questions. Here, we provide you with unbiased answers to your questions.

Thinking About Retiring Early? 8 Things to Consider First

Tom Fridrich, JD, CLU, ChFC®, Senior Wealth Planner We’ve all asked ourselves whether it’s too early to retire (usually after a particularly challenging commute or dealing with a difficult client).  You may have even gone so far as to take a sneak peek at your account statements …

Weekly Update: February 27th

By Debra Taylor, CPA/PFS, JD, CDFA™ Dear Friends, For investors, it may feel like déjà vu all over again as inflation and the Fed dominate market headlines on a day-to-day basis. After all, the numerous market swings last year were driven by ever-changing expectations around the Fed – …

4 Tips to Take Your 401(k) to the Next Level

Matt Kory, Vice President, Retirement Programs As a retirement income vehicle, the 401(k) is second in popularity only to Social Security – and as CNBC reported in 2019 the number of 401(k) millionaires is at an all-time high. But is a million dollars even enough for your retirement needs? 

1 2 3 224 225 226

Get in Touch

In just 15 minutes we can get to know your situation, then connect you with an advisor committed to helping you pursue true wealth.

Schedule a Consultation

TweetsFollow Us