In certain cases, you may be eligible to make a Mega Backdoor Roth contribution. This strategy involves using an employer-sponsored 401(k) plan that allows after-tax contributions and then converting those contributions to a Roth IRA or Roth 401(k). Under the right circumstances, this can allow one to contribute tens of thousands of dollars into a Roth IRA. However, the rules are very restrictive and prohibitive for most and can be difficult to navigate.
To help make the analysis easier, we are offering the “Can I Make a Mega Backdoor Roth Contribution?” flowchart. It addresses some of the most common issues that arise for anyone trying to make a Mega Backdoor Roth contribution. This flowchart considers:
- The maximum amount that can be contributed
- The impact of the ACP test
- 401(k) plan-specific features providing in-service distributions and/or separate accounts
- The tax impact upon rollover
- The step-by-step process to complete this kind of contribution