What Is The Mega Backdoor Roth?

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What Is The Mega Backdoor Roth?

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In this episode, John and Nick explain the Mega Backdoor Roth strategy and how high-income savers may be able to contribute significantly more to Roth accounts through their workplace retirement plans. They break down the rules, requirements, and potential tax benefits, while highlighting who may benefit most from this advanced retirement planning strategy. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: info@pfgprivatewealth.com Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents. Marc: This week on Retirement Planning Redefined, part two of our conversation about the backdoor Roth IRA. This is the mega backdoor Roth. Let's get into that conversation with John and Nick. Hey, everybody. Welcome into the podcast. This is Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find the guys online at pfgprivatewealth.com. That's pfgprivatewealth.com. And it sounds like something, guys, out of a, I don't know, out of a superhero story or something. It's the mega backdoor Roth. And that's the topic of the conversation this week. So we're just going to dive right in because there's a lot to cover anyway. So we'll just jump in and get going. I guess, Nick, if you want, why don't you talk to us, give us a really, really short recap of what we talked about last week for those who may have not listened to that podcast. And then what's to understand what to do if you want more than the IRA limits and just kind of set us up here a little bit for understanding the mega backdoor Roth. Nick: Sure. So just a quick recap on a Roth IRA and the benefits of it. So contributions typically are with after tax dollars. So income that has already been taxed. The account grows tax deferred, so you don't receive a 1099 each year. And then the withdrawals are tax-free after 59 and a half. The Roth IRAs do not require required minimum distributions, which are nice. And they're a great place to have more of your growth oriented assets because of the tax-free upside and the fact that you can leave a tax-free account to your beneficiaries. Marc: Gotcha. And I guess some confusion here, guys, and help me out to understand this a little bit, is that we've been thinking about the Roth. We typically just, I've been saying just the Roth, that's the IRA. But because they have now created the Roth 401Ks, that adds a little confusion to the conversation as well. It's always funny because the word contribution and contribution, excuse me, and conversion confuse people. So it just confused me right now. But also 401, the Roth 401k and then the Roth IRA is now confusing people as well too. So are we talking a little bit more about on this episode, that mega backdoor Roth being from the workplace plan? Is that what we're looking at here? John: Yeah. So we'll have to leave the IRA world and jump into the 401k plans where they have much larger contribution limits, which is where we get our superhero work. Marc: The mega term. Okay. Yeah. John: Exactly. We could do a lot more of what we discussed last week. So if you like the benefits Nick went over, this is a great way to really maximize those benefits. Marc: Okay. Well, let's start with the limits. What are the limits? I guess again, we're in the 401k plan now. John: Yeah. So for 2026, under the age of 50, standard contribution limit is 24,500. There is a catch-up, and for today's purpose, we'll just talk about the standard contribution. When you are talking catch-ups, just whatever we're discussing, add the catch-up to it. But for today's purpose, to keep it simple because we are going to do a deep dive into some of these numbers, let's just assume standard contribution limit, which for this year, 24,500. And what a lot of people aren't aware of because it typically doesn't apply is your total limit to the 401k contributions. Now this is employee and employer is actually 72,000 for 2026, and that gets adjusted up every year similar to the standard contribution limits. Marc: Oh, okay. Wow, that is a big number. John: Yeah, it's mega. Marc: Yeah, it's mega. Yeah. So why would the IRS build a $72,000 ceiling if they cap the personal down so low? So I guess what's the...

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