Do you want to invest more towards your retirement?

In this video we’ll explain how to do this by utilizing a powerful employee benefit – the Mega Backdoor Roth 401(k). This benefit is also known as the After-Tax Roth Conversion. Roth Conversion Benefit.

Convert your after-tax dollars into a Roth IRA for tax-free growth and tax-free access in retirement.

The Mega Backdoor Roth benefit is gaining popularity within a lot of 401(k) plans and available to employees who work at companies like Microsoft, Amazon, Salesforce, Facebook, VMware, Snapchat, and many others. Check with your HR team if you are unsure your company provides this employee benefit.

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Video highlights:

► What are the tax benefits of using the Mega Roth Conversion

► Take advantage of the Mega Backdoor Roth 401k Conversion benefit if it is available to you through your employer sponsored 401(k) plan

►Learn how to convert the after-tax dollars in your 401(k) to a Roth

►A sample situation in which the Mega Backdoor Roth strategy is used to execute a Roth conversion

► The difference that using a Mega Back Door Roth Conversion can make in your finances
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Avier Wealth Advisors
425-467-1011
10655 NE 4th St. Suite 508
Bellevue, WA 98004

We focus on providing comprehensive financial planning and investment advisory strategies for tech professionals and their families.

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Third Party:
Avier Wealth Advisors is not affiliated with any organizations mentioned in this video. There is no guarantee that the information we have provided is accurate. Employees are encouraged to contact their employer should they have any questions regarding their employee benefits.

Taxes: Avier Wealth Advisors does not prepare taxes. The tax ideas presented are meant to demonstrate general concepts rather than precise calculations. We consult with your tax professional for exact calculations.

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The Mega Backdoor Roth 401(k) is a powerful tool that allows high-income individuals to contribute significantly more towards their retirement savings and enjoy the tax advantages of a Roth account. With the start of 2021, it’s essential to understand the intricacies of this strategy and harness its benefits.

To comprehend the concept of Mega Backdoor Roth 401(k), we must first break it down to individual components. Let’s begin with the traditional 401(k) plan. For decades, employees have been contributing pre-tax income towards their 401(k) accounts, reducing their taxable income for the year. The funds grow tax-free until retirement, but withdrawals during retirement are taxed.

On the other hand, a Roth 401(k) enables contributions with after-tax income. Although these contributions don’t offer any immediate tax benefits, the funds grow tax-free, and qualified withdrawals during retirement are entirely tax-free. Many individuals prefer the Roth option as they anticipate being in a higher tax bracket during retirement.

Now, let’s talk about the “Backdoor” concept. Individuals with incomes exceeding certain thresholds are not eligible to contribute directly to a Roth IRA. However, they often use a backdoor strategy by making non-deductible contributions to a Traditional IRA and then converting those funds to a Roth IRA. This process allows high-income earners to take advantage of the tax benefits of a Roth account indirectly.

The Mega Backdoor Roth 401(k) strategy combines elements from both traditional and Roth 401(k) plans, providing an opportunity for high-income earners to contribute even more towards retirement. Thanks to a provision in the tax code, employees can contribute up to the IRS annual limit, which, for 2021, is $19,500 to their 401(k) plans ($26,000 if aged 50 or older).

However, an additional provision allows employees to contribute an after-tax amount up to the overall annual contribution limit, which is $58,000 ($64,500 if aged 50 or older) in 2021. This is where the “mega” element comes into play. By contributing the maximum allowed amount, individuals contribute the difference between the annual limit and their pre-tax contributions as after-tax contributions.

Once the after-tax contributions are made, the next step is to convert them into a Roth IRA, hence the “backdoor” component. And since the after-tax contributions were already taxed, the conversion does not create taxable events. Subsequently, the converted amount grows tax-free, and qualified withdrawals during retirement are entirely tax-free.

To execute a Mega Backdoor Roth 401(k) strategy, it is crucial to ensure your employer’s 401(k) plan permits both after-tax contributions and in-service (non-hardship) withdrawals. Not all plans offer this option, so verifying with your employer or plan provider is essential.

In conclusion, the Mega Backdoor Roth 401(k) strategy can be a game-changer for high-income earners seeking to boost their retirement savings while taking advantage of the benefits of a Roth account. By making after-tax contributions and converting them into a Roth IRA, individuals can potentially achieve tax-free growth and tax-free withdrawals during retirement. However, it is crucial to consult with a financial advisor or tax professional to ensure this strategy aligns with your specific financial goals and circumstances.