In 2023, you can contribute up to $66,000 if you’re under 50 and $73,500 if you’re 50 or older to your Microsoft 401(k).

You can fully leverage these limits by taking advantage of the Mega Backdoor Roth. This is a powerful benefit within your Microsoft 401(k). It allows you to contribute after-tax dollars and convert those dollars to Roth.

Your 401(k) contributions also increased in 2023. If you’re under 50 you can contribute up to $22,500 and if you’re 50 or older you can contribute up to $30,000.

Microsoft will match 50% of your 401(k) contributions. You can earn up to an additional $11,250 in free money from Microsoft.

Key moments in video:

00:00 Introduction
00:25 2023 401k Contribution Limits
00:56 What is the Microsoft Mega Backdoor Roth?
01:26 Mega Backdoor Roth example
02:37 Tax benefits of the Mega Backdoor Roth
02:59 Tax benefits associated with a Roth

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Using the Mega Backdoor Roth feature, Microsoft employees can contribute up to the federal limit. Here’s an example of how an employee, under 50 years old, can save $32,250 to a Roth:

• 401(k) contribution $22,500 (pre-tax or Roth)
• Earn Microsoft match: $11,250
• After-tax contribution converted to Roth: $32,250

Your after-tax contribution, along with your 401(k) contribution and employer match = $66,000.

⭐⭐Reduce future taxable income.⭐⭐
The Mega Backdoor Roth is way for high-income earners way to utilize the benefits of a Roth. Within a Roth your money grows tax-free. These same dollars and the interest earned are tax-free when accessed in retirement (59.5+ years old).

Having additional money in a Roth account enables you to manage your retirement distributions. This gives you more control over future taxable income.

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

Third Party: Avier Wealth Advisors is not affiliated with Microsoft. There is no guarantee that the information we have provided is accurate. Microsoft 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….(read more)

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Microsoft 401(k) and Mega Backdoor Roth in 2023 – Save Thousands to a Roth in English

If you’re an employee at Microsoft, you’re probably already aware of the company’s generous 401(k) plan. This retirement savings plan offers a variety of investment options, automatic payroll deductions, and even a company match. But what you may not be aware of is a little-known tax loophole that could allow you to save even more for retirement: the Mega Backdoor Roth IRA.

What is a Mega Backdoor Roth IRA?

A Mega Backdoor Roth IRA is a type of retirement savings account that allows you to save more for retirement than a traditional 401(k) plan. Essentially, you contribute after-tax dollars to your 401(k) plan and then immediately transfer those funds to a Roth IRA.

The advantage of the Mega Backdoor Roth IRA is two-fold. First, you can save much more than the annual contribution limit for a Roth IRA (currently $6,000 for individuals under 50; $7,000 for those 50 and over). Second, because Roth IRAs are funded with after-tax dollars, you won’t have to pay taxes on your earnings when you withdraw them in retirement.

How do you take advantage of the Mega Backdoor Roth IRA loophole?

Not all 401(k) plans allow for Mega Backdoor Roth contributions, but Microsoft’s does. To take advantage of this loophole, you’ll need to follow a few steps:

1. Max out your traditional 401(k) contributions – Currently, employees can contribute up to $19,500 per year to their traditional 401(k) plan.

2. Check with your plan administrator – Make sure your plan allows after-tax contributions and Roth in-plan conversions or withdrawals.

3. Contribute after-tax dollars to your 401(k) – You can contribute up to $58,000 per year in after-tax dollars to a 401(k) plan.

4. Convert those after-tax dollars to a Roth IRA – Once the after-tax contributions hit the 401(k), you’ll need to convert these to a Roth IRA.

What are the benefits of using the Mega Backdoor Roth IRA?

There are several benefits to using the Mega Backdoor Roth IRA:

1. Tax-free growth – Because Roth IRAs are funded with after-tax dollars, you won’t have to pay taxes on your earnings when you withdraw them in retirement.

2. Higher contribution limits – Unlike a traditional Roth IRA, which has an annual contribution limit of $6,000, the Mega Backdoor Roth IRA allows you to contribute up to $58,000 per year.

3. Flexibility – While traditional Roth IRAs have income limits, the Mega Backdoor Roth IRA is available to everyone who has access to this 401(k) provision.

4. Estate planning – Contributing to a Roth IRA can also be advantageous for estate planning purposes as Roth IRAs are not subject to required minimum distributions.

In conclusion, if you work at Microsoft and are looking for ways to maximize your retirement savings, the Mega Backdoor Roth IRA is worth considering. By taking advantage of this often overlooked tax loophole, you could save thousands of extra dollars for retirement and enjoy tax-free growth on those savings. Consult with a financial advisor before making any investment decisions.