A Mega-Backdoor Roth IRA contribution lets you contribute an additional $37,500 per year into your Roth IRA. It's a tax loophole that takes advantage of your 401k plan at work — meaning it's not available to everyone and heavily depends on your employer's 401k options.
You need a 401k plan that allows after-tax contributions. Less than half of 401k plans offer this feature. The same 401k plan must also allow transferring money from your 401k to your Roth IRA.
If it's available, you can perform a Mega-Backdoor Roth contribution by:
- contributing an additional after-tax $37,500 into your 401k
- transferring that amount into your Roth IRA
- consulting with an accountant or financial planner on how to handle the tax paperwork
It's also worth noting: don't over extend yourself. $37,500 is a significant amount of money to be locked away for retirement. If you think you might need it in the near future, stick to the regular IRA contribution limits.
See Nerd Wallet's Mega Backdoor Roths: How They Work for more info.
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