The theme this week is the backdoor Roth IRA strategy. If you make too much money to qualify to make a Roth contribution in 2019, don’t fret. There is a little-known strategy called the backdoor Roth, that will still allow you to make Roth contributions. 

Here’s how it works: You make a non-deductible or after-tax IRA contribution to your Traditional IRA. There aren’t income limits on conversions from a Traditional IRA to a Roth IRA, so you can then turn around and convert that contribution to a Roth. Bam. Done. Take that Uncle Sam!

Today I’m talking about the Mega Backdoor Roth Strategy. It’s like the backdoor Roth, on steroids! You can only convert $7,000 to your Roth in 2019, using the backdoor Roth strategy, but with the mega backdoor Roth, you can actually save up to $62,000 in a Roth in 2019. 

Here’s how it works: Through your 401k plan, you can contribute up to your maximum of $25,000 in 2019 if you’re over 50. In addition to that, if your employer does not provide any matching contributions nor profit-sharing, you could contribute up to an extra $37,000 on an after-tax basis to your 401(k). From there, if your plan allows, you can then rollover the full $62,000 into a Roth. 

The stars need to align in order for you to take advantage of the mega backdoor Roth, and your 401k plan needs to have all the right features and language written into the plan document. So this strategy works best for small business owners who have a say in the design of their 401k plan. It works really well for solo entrepreneurs where it’s just you, because it’s much easier to put this type of plan in place. It works best when you don’t have matching contributions, and if you have employees it’s harder to get your contribution amounts up to that $62,000 maximum. 

That’s it for today. Before you go, please take a minute to leave an honest review for the One Minute Retirement Tip in Amazon or iTunes. Thanks for listening. My name is Ashley Micciche and this is the One Minute Retirement Tip. 

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