Mega Roth

After-tax savings beyond the 401K max contribution

When income exceeds $218,000 (modified adjusted gross, married filing jointly), savers are phased out of contributing to an after-tax Roth IRA. What if they want to save more? Well, some 401K plans have a special after-tax bucket that allows for savings beyond the 401K max. A contribution to this bucket may be converted into an after-tax Roth account inside the 401K plan.

This week, Senior Wealth Advisor Todd Stueve joins Market Perspective to discuss the Mega Roth savings strategy. For income earners who are saving for retirement, a so-called Mega Roth may be used after maxing out their standard 401K contribution. Currently, individuals over the age of 50 may set aside up to $30,000 through their 401K plan. These contributions are typically made pre-tax to lower the saver’s taxable income for that year.

The Mega Roth can be a good savings option after meeting the 401K max. In a Roth-type account, investment and appreciation can be withdrawn tax-free after age 59 1/2. There are nuances and requirements to consider. Watch the video and contact your financial advisor or HR & benefits manager with questions.