More about 401K:
More about IRAs:
The Mega Backdoor Roth 401K is available in a few select 401K plans, so check if your company’s plan offers it. If your financial situation can afford it, I recommended researching it since it’s like a cheat code to your future wealth. It effectively allows you to contribute over 5x more than your normal Roth IRA contributions… which IS A LOT!
The 401K IRS Limit in 2020 is $57,000 which is a combination of personal contribution + employer match + (and here’s the key) AFTER TAX CONTRIBUTIONS if your plan allows it. Additionally, your plan must allow IN-PLAN CONVERSIONS to a Roth account inside your 401K. You get to keep this money with tax-free growth until you leave that 401K (or retire).
Again, this is a complex and nuanced topic – so please consult a professional. This video is only for educational and entertainment purpose
0:00 Intro
0:49 Mega Backdoor Roth Intro
1:21 Revisit: 401K and IRA
2:25 401K IRS Limit is $57,000!
3:14 Criteria to look for
4:45 In Plan Conversion and The Future Reward
5:46 Summary and Thanks for watching!
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LEARN MORE ABOUT: IRA Accounts
CONVERT IRA TO GOLD: Gold IRA Account
CONVERT IRA TO SILVER: Silver IRA Account
REVEALED: Best Gold Backed IRA
Minh, if I am employed and getting 401K, can I open up an IRA as well on my own? Do I need to have another source of work and income to do this?
Not very many companies allow this but if your employer does it's a game changer, especially if you want to retire while you are still alive.
I started the mega-backdoor Roth IRA contribution last month with in-plan conversion. Although I'll have less for my liquid assets, I'll be ready for retirement party
So what the reason to prioritize IRA before mega back door? If they are taxed the same, why not just contribute to the mega back door and be done with it?
LOLLL that intro was fucking lit. On one hand I don't want to give you compliments because we are competitors in this niche, but I had to give you a shout out for the awesome production value.
Just got around to watching this. Excellent video!
you can only contribute to ira or roth ira if your income is below certain limit set by irs. if you already have a big ira account there is so called pro rota rule
I max out my annual HSA contribution. Does that amount count towards the $57k cap? Or is it only 401k (employer contributions) + 401k (employee contributions + roth ira?
I have been doing this for last two years. It works well. It helps when your company allows large maximum contributions percentages. In some companies, you can contribute 30-50% to your 401K and you can exceed the limits. If you exceed the $57,000 ($58,000 in 2021), some companies have separate plans for the additional contribution that surpasses the $57,000 limit. Employees may join those plans and the money would be deferred and paid after the employee retires. The main reason for joining these plans is so you can continue to receive the company matching money. If you don't join these plans, the company contributes zero to your retirement account once you max out at $57,000. If your company does not have such plans, you have to adjust your contribution rate such that you hit the $57,000 limit at the end of the year. You have to include the company match amount and make sure you don't exceed the limit.
There are more details on how to roll over the after tax portion to your IRA. You can choose to roll over the aftertax and the gains and pay a tax penalty or split the payments for the aftertax and gains. The aftertax portion goes to your Roth while the gains (which is considered as pretax money) go toward your traditional IRA. If you do an "in plan" conversion, most companies only allow one per year. However, you can do unlimited transfers to your external IRA accounts. They may charge a check fee and expedited fee. The main risk is that it takes time and you will not make any gains during the transfer period. Most people do it twice a year or quarterly to minimize any gains on the aftertax money. If you decide to split aftertax and the gains, you will need to have the company write two checks to the company holding your IRA accounts. Set one amount to the aftertax portion and the remainder as the gains. The two checks would have to go to each of the IRA account. If you don't do that, you will have to pay taxes on the gains.
The main benefit of the "in-plan" vs the IRA approach is the in-plan conversion would limit your investment choices to your current 401K plan in your company. You can't buy individual stocks or other funds outside of what your company offers. This may be fine if you like your company plans. Some of the indexed funds in company plans have a much lower fee as compared to publicly traded mutual funds. On the other hand, you can invest the money in any individual stock or mutal funds if you put it into your IRA.
great video, I'm actually meeting with financial advisor next week about this.
thank you again for info
I'm an idiot. Been working for Microsoft for 5 years and I didn't know I could do this. Only maxed out my 401k.
Never knew about the mega backdoor roth 401k. I've always just stuck with my personal IRA and 401k but this is great to know for the future!
Great breakdown of the Mega Backdoor Roth 401k. Had no idea of the mega backdoor!
ROTH IRA's are the best! Nobody likes paying more in taxes!
Just learned about this concept. Not there yet but maybe in a year! Love how you broke this down. Killer intro.
omg wow I loved the intro. it works xD you just made me look into my retirement accounts. I had never heard of this but super awesome to learn about!
thanks for sharing.
best wishes for your channel ✅