How do I enter Mega Backdoor Roth Contributions?
Add a Roth 401k, Roth 403b or Roth 457 account
📌 Add a Standard Contribution in Money Flows > Recurring Contributions3. Add a Roth IRA or Roth 401(k) account to model mega backdoor Roth contributions accurately.
Configure contributions to this account to account for after-tax dollars intended for Roth conversions.
NOTE: Income linked contributions are subject to the annual contribution limits.
What is a Traditional 401k?
A Traditional 401k is a retirement account type that may allow an individual to contribute pre-tax dollars, taking advantage of a tax deduction in the year they contribute to the plan.
There are limits on an individual's annual contributions to a Traditional 401k
There is a different limit, or maximum, on annual aggregate employer and employee contributions to a Traditional 401k. This may allow you to contribute after-tax dollars.
Traditional 401k withdrawals are taxed at the individual's ordinary income tax rate
Traditional 401ks have a 10% penalty for withdrawals prior to age 59.5
Traditional 401ks require Required Minimum Distributions at or after age 73
What is a Roth 401k or IRA?
A Roth 401k or IRA is an account type that that may allow an individual to contribute after-tax dollars and avoid income tax on any future qualified withdrawals. So, Roth accounts are considered tax exempt or tax free.
There are limits on annual contributions to a Roth 401k or a Roth IRA
There are income limits on contributions to a Roth IRA. You may not qualify for a direct contribution, or you may not qualify for a full contribution if your income exceeds certain thresholds.
What is a Mega Backdoor Roth?
A Mega Backdoor Roth is not an account type but a strategy involving after-tax 401(k) contributions that are subsequently rolled into a Roth account to bypass annual contribution limits on traditional Roth accounts. This may include in-service withdrawals or in-plan rollovers.
If your employer offers either in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k), you may be able to take advantage of this strategy.
A Mega Backdoor Roth works like this:
You contribute after-tax money to your 401k
You perform in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k)
Your Roth dollars grow tax free
What if my plan does not allow in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k)?
If your plan does not allow in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k), and either:
your 401k account contains after-tax dollars
you contribute after tax dollars to your 401k
your 401k account contains after-tax dollars and you contribute after tax dollars
We recommend you create 2 separate accounts for modeling. Create a Pre-tax Traditional 401(k) account for tax-deferred dollars and a Roth 401(k) account for Roth contributions. Accurately add contributions to each respective account. If income constraints prevent sufficient after-tax contributions, you can utilize taxable accounts. Transfer funds from your taxable accounts to your Roth account within Boldin to reflect this strategy, ensuring your financial model remains accurate.