In certain cases, clients may be eligible to make a Mega Backdoor Roth IRA contribution. At a high level, this involves a client making a non-Roth, after-tax contribution to their 401(k), rolling it out of their 401(k) plan and into a Roth IRA. Under the right circumstances, this can allow the client to contribute tens of thousands of dollars into a Roth IRA. The issue is that the rules are very restrictive and prohibitive for most clients.
To help make the analysis easier, we have created the “Can I Make A Mega Backdoor Roth IRA Contribution?” flowchart. It addresses some of the most common issues that arise for a client trying to make a Mega Backdoor Roth IRA contribution. This flowchart considers:
- The maximum amount that can be contributed
- The step-by-step process to complete this kind of contribution
- Impact of ACP test
- Impact of the plan allowing in-service distributions
- Impact of the plan having “separate accounts”
- Tax impact upon the rollover
This article represents opinions of the authors and not those of their firm and are subject to change from time to time, and do not constitute a recommendation to purchase and sale any security nor to engage in any particular investment or legal strategy. The information contained here has been obtained from sources believed to be reliable but cannot be guaranteed for accuracy.