The Updated Mega Backdoor Roth Conversion for 2024

This Mega Backdoor Roth conversion article has been revised for the 2024 tax year. Every time I think my retirement savings have reached their maximum potential in a given year, something else comes along to take it even further – this time it is after-tax to Roth conversion aka Mega Backdoor Roth conversion and I am frustrated that I hadn’t taken advantage of it sooner!

Over time, my annual retirement savings progression has looked something like this:

Utilizing my employer’s generous 50 401K match on the maximum IRS contribution limit. Contributing 25% of income earned through side hustles (such as this site) into an SEP IRA or Solo 401K account.
Change from PPO to an HDHP coupled with health savings accounts (HSAs) and making maximum contributions each year to an HSA can give you access to funds later, similar to an IRA (if needed).
Discovering that Mrs. 20SF’s 457B Plan effectively enabled her to double her pretax 401K contributions is exciting news; but even better is taking advantage of its mega backdoor Roth conversion option.
What Is a Backdoor Roth Conversion? Before we delve into what a mega backdoor Roth conversion entails, let’s first define a backdoor Roth conversion. In brief, a backdoor Roth conversion enables high income earners who surpass Roth IRA income limits to take advantage of indirect Roth contributions via taking advantage of an IRS loophole and contributing via non-deductible Traditional-to-Roth conversion by doing the following:

Contributor has both a Traditional IRA and Roth IRA with the same broker, reaching an income threshold that exceeds the Roth IRA contribution income limit in any year.
Contributor makes contributions to their Traditional IRA during that tax year (up to the maximum IRA contribution limit of $7,000; age 50 or over can make additional catch-up contributions of $8000).
Once the contribution posts to their account (typically within 24 hours or later), contributor converts all funds from a Traditional IRA into a Roth IRA without taking a tax deduction for it.
As with any financial decision, there are numerous considerations when contemplating a backdoor Roth IRA conversion. I generally recommend traditional over Roth accounts for high income earners, and think a backdoor Roth conversion may waste away any tax deduction opportunities available to you. Mega backdoor Roth conversions on the other hand present unique challenges.