This is how I set my 401k contributions in Vanguard

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Other links:
– Wealthfront for our cash accounts (5.5% interest using this link):
– Interactive Brokers for my Roth IRA and taxable account:
– Empower for auto organizing expenses:

Audiobooks:
– Warren Buffett and the Interpretation of Financial Statements:
– Dave Ramsey’s Total Money Makeover: …(read more)

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401(k) Contributions in Vanguard – Mega Backdoor

Vanguard is a well-known investment management company that offers a range of financial products, including retirement plans such as 401(k)s. One of the unique features of Vanguard’s 401(k) plans is the ability to make mega backdoor contributions, which can provide additional tax benefits for high-income individuals.

What are mega backdoor contributions, and how do they work in Vanguard’s 401(k) plans?

Mega backdoor contributions are after-tax contributions made to a 401(k) plan, in addition to the regular pre-tax and Roth contributions. These after-tax contributions can be advantageous for high-income individuals who have already maxed out their regular 401(k) contributions and want to save more for retirement.

In Vanguard’s 401(k) plans, participants can make after-tax contributions up to the annual IRS limit, which is $58,000 in 2021 ($64,500 for individuals aged 50 and above). These after-tax contributions can then be converted into a Roth IRA within the plan, where they will grow tax-free and can be withdrawn tax-free in retirement.

The mega backdoor strategy can be especially beneficial for individuals who expect to be in a higher tax bracket in retirement, as it allows them to maximize their tax-free retirement savings. In addition, Vanguard’s low-cost investment options and comprehensive retirement planning tools make it easy for participants to manage their after-tax contributions and monitor their retirement savings.

However, not all 401(k) plans offer the option for mega backdoor contributions, so it’s important to check with the plan administrator to see if this feature is available. Vanguard’s 401(k) plans are known for their flexibility and comprehensive range of investment options, making them an attractive option for individuals looking to maximize their retirement savings through after-tax contributions.

In conclusion, mega backdoor contributions in Vanguard’s 401(k) plans can provide additional tax benefits and retirement savings opportunities for high-income individuals. By taking advantage of after-tax contributions and converting them to a Roth IRA within the plan, participants can maximize their tax-free retirement savings and achieve their long-term financial goals. If you are eligible for this strategy, it’s worth considering how mega backdoor contributions in Vanguard’s 401(k) plans can help you build a more secure financial future.