Backdoor ROTH
A backdoor Roth is a strategy that allows high-income earners to contribute to a Roth IRA retirement account by converting other types of IRA accounts. In 2024, the backdoor Roth strategy can be implemented in a few ways:
A backdoor Roth is a loophole that avoids income limits to be eligible to contribute to a tax-free Roth IRA retirement account. The loophole: Taxpayers making more than the $161,000 limit in 2024 can’t contribute to a Roth IRA, but they can convert other forms of IRA accounts into Roth IRA accounts.
The tax-free accumulation is the obvious attraction. But it comes with a relatively high administrative burden:
Each year’s contribution has to be created as a separate Roth IRA account, meaning that if you make contributions for the next 20 years, you’ll be juggling 20 separate Roth IRA accounts (for more on this, see the additional subhead below, “About those multiple accounts …”). There’s also a thicket of IRS conversion regulations that have to be followed carefully to avoid triggering additional tax liabilities.
https://www.kiplinger.com/retirement/how-a-backdoor-roth-ira-works-and-drawbacks
Here are some other things to consider about backdoor Roth IRAs:
You must wait five years before you can make tax-free distributions.
If you're under 59 and a half, you should avoid withdrawing within five years of your conversion, unless you qualify for an exception.
The IRS requires that the oldest conversions are withdrawn first.
The order of Roth IRA withdrawals is contributions, conversions, then earnings.
https://www.fidelity.com/learning-center/personal-finance/backdoor-roth-ira
https://www.cnbc.com/select/backdoor-roth-iras/
Mega backdoor Roth
This strategy involves making after-tax contributions to a 401(k) and then rolling them over into a Roth IRA or Roth 401(k). The maximum contribution for 2024 is $69,000, or $76,500 for those 50 and older. However, not all 401(k) plans allow after-tax contributions, so you should check with your benefit plan administrator.
Once rolled over from employer to third party management (i.e. Fidelity) one cannot do a Backdoor Roth Conversion or you will get taxed twice.
Must inquire with your active employer sponsored 401k to see if a conversion can happen—changing distributions. And that conversion would be taxable income.
Checked with my employer benefits group and I can convert 401k to Roth. It is a taxable event, and exploring how much margin (EOY 2024), but need to confirm if the taxable event is out of pocket.
Pre-Tax Contributions & Employer Matching Contributions would be taxed as income.
After-Tax Contributions have an earnings portion that is taxable—in my case roughly 40% of this account.
There is no fee to convert to ROTH.
If I convert $10k, this may have a taxable cost of $2.4k. In
