How To Tell If You Can Use the Mega Roth Backdoor

Not every employer 401(k) plan is created equal. There are a handful of fairly unique rules that your plan will need to support in order to even consider making use of the Mega Roth Backdoor. Not sure how to find out? You can ask these questions to your plan’s recordkeeper or email your plan administrator (HR). The essentials that you’ll need to determine are: can I put money in after-tax, and how easily can I take it out?

  1. Does the plan allow for After-Tax (Not Roth nor Pre-Tax) contributions? Almost every 401(k) plan allows for Pre-Tax contributions, many allow for Roth contributions, but many do not allow for the third contribution type: After-Tax contributions.
  2. Are In-Service After-Tax withdrawals permitted?
    1. Are there restrictions on these withdrawals? In some cases, there may be a limit on the number per year, minimum amount to process, or even a time restriction on the funds.
    2. Is there a fee for processing the transaction? Many times, a nominal fee is charged to process the transaction. Paying $25 for a transaction once every quarter or so isn’t a big expense, but it’s good to know the cost if you plan on transferring frequently.