If you earn too much, you likely are unable to make a regular contribution to a Roth IRA. But, there is a workaround.

 

You may be eligible to make a Backdoor or Mega Backdoor Roth contribution. At a high level, these strategies involve you making a non-Roth, after-tax contribution to either an IRA or 401(k), then rolling the funds into a Roth account. Under the right circumstances, this can allow you to contribute thousands of dollars to a Roth account. However, the rules are very restrictive and prohibitive and can be challenging to navigate. You must consider many factors and regulations to implement these strategies without penalty.

 

To help make the analysis more accessible, we created the “Can I Make A Backdoor or Mega Backdoor Roth Contribution?” flowchart pack. These flowcharts address vital considerations.

 

• For Backdoor Roths:

  • Multiple retirement accounts

  • Pro-rata and aggregation rules

  • Step transaction doctrine

  • A step-by-step process for making a Backdoor Roth contribution

• For Mega Backdoor Roths:

  • The maximum contribution

  • The impact of the ACP test

  • 401(k) plan-specific features providing in-service distributions or separate accounts

  • The tax impact upon rollover

  • A step-by-step process to complete this kind of contribution