lutz logo
lutz logo
  • Services
  • News & Insights
  • About
  • Client Portal
Search
  • Services
  • Accounting
  • Advisory
  • Financial
  • M&A
  • Talent
  • Tech
  • Accounting Services
Services
  • Audit & Assurance
  • Client Advisory Services
  • Outsourced Accounting
  • Tax
  • Business Valuation
  • Litigation Support & Forensic
View All
Industries
  • Agribusiness
  • Construction
  • Family Office
  • Healthcare
  • Manufacturing & Distribution
  • Nonprofit
View All
News & Insights
Financial Access Checklist
Guide
Financial Access Checklist

Share this information with your spouse to assure you each have access to manage important financial tasks independently.

Read More
  • Advisory Services
Services
  • Accounting
  • Financial
  • M&A
  • Talent
  • Tech
View All
Resources
The Art of Budgeting
Recording
The Art of Budgeting + Smart Saving Strategies
Learn how to get your finances under control and increase your savings! Hear real-life examples and best practices to secure a successful future.
Watch Now
Business Insights
Comparing Business Valuation Methods
Blog
Comparing Business Valuation Methods: Which is Right for You?
Valuation experts rely on three primary approaches to determine the value of a business: income approach, asset approach, and market approach.
Read More
  • Financial Services
Services
  • Financial Planning
  • Investment Advisory
  • Retirement Plan Services
  • Pooled Employer 401(k) Plan
View All
Resources
  • Lutz Financial Blog
  • Our Team
  • Client Portal
  • Charles Schwab Login
  • Send Files Securely
Contact Us
NEWS & INSIGHTS
Website Featured Content Images
Market Commentary
Financial Market Updates

Read our latest financial market updates and sign up to receive them straight to your inbox.

Read More
  • M&A Services
Services
  • Sell-Side Representation
  • Transaction Advisory
  • Exit Planning
  • Business Valuation
View All
Resources
Selling a C Corporation
Blog
Factors to Consider When Selling a C Corporation

Understand the tax issues affecting both buyers and sellers involved in C corporation merger and acquisition transactions

Read More
Business Insights
Post-Acquisition Checklist
Guide
Post-Acquisition Checklist for a Seamless Transition
To help you navigate this critical period, we've compiled a comprehensive checklist covering key areas that demand attention after the deal closes. 
Read More
  • Talent Services
Services
  • Search & Staffing
  • Outsourced HR
  • HR Consulting
View All
Candidate Resources
  • Job Seeker Process
  • Current Opportunities
  • Lutz Internships
Contact Us
News & Insights
Overcoming Bias in Recruitment
Blog
Unconscious Bias in Recruitment: How to Overcome It
Learn how to take the bias out of recruitment and build a diverse, talented workforce with these tips.
Read More
  • Tech Services
Services
  • Outsourced IT
  • Data Analytics
  • Technology Strategy
  • Software Consulting
View All
Resources
When to outsource your IT
Blog
How to Know When It's Time to Partner with an IT Pro

One day your technology seems manageable, and the next you're wondering if you need more support. Here are the clear signs it's time to outsource your IT.

Read More
Business Insights
Untitled design (1)-Mar-08-2024-08-50-35-9527-PM
Video
Pella Client Testimonial
"I've used them for valuation work, stock transfers, hosting all of my technology, and now data analytics. I'd say they lead the pack in terms of anticipating what I'm going to need before I even know I need it."
View Now
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
Webinars & Events
Events
Register Today

Register for an upcoming event or access our library of on-demand recordings.

View All
Market Updates
COMMENTARY
Stay Informed

Catch up on market moves with our weekly update, featuring in-depth insights and analysis.

View All
Resources
EBOOKS & GUIDES
Download Now

Take a deep dive into challenging business topics with these free educational resources. 

View All
  • News & Insights
  • Business Insights
  • Webinars & Events
  • Market Updates
  • Resources
Business Insights
BLOG
Explore Topics

Get the latest news and insights on relevant topics that matter most to you.

View All
  • About
About

Lutz is a business solutions firm for people seeking a partner to help energize and heighten economic and organizational success.

Our Company
Our Team
Offices
Careers
Internships
Contact Us
  • Contact
Client Portal

Log in to your relevant client portal to access your account, upload documents, or make a payment.

Make a Payment
Accounting Client Portal
Financial Client Portal
Charles Schwab Login
Send Files Securely
Contact Us
  • Financial Planning

Tax-Free Roth Strategies: Backdoor Roth IRA & Mega Backdoor Roth

Tom Hodgson, CFP®, Investment Advisor
April 9, 2024
Tax-Free Roth Strategies: Backdoor Roth IRA & Mega Backdoor Roth

We’ve noticed a consistent theme of people focusing on reducing taxes now rather than planning for tax flexibility during retirement. While focusing on lowering taxes now is crucial, considering strategies for tax-free distributions in retirement is equally important.

The Backdoor Roth IRA and Mega Backdoor Roth are two powerful strategies that enable individuals to maximize the total amount they can contribute annually into tax-free Roth accounts. Thus, they add a tremendous amount of flexibility to help control how much tax they pay in retirement.

 

Backdoor Roth IRA

The term Backdoor Roth IRA is commonly used to describe the process for high-income earners to contribute to their Roth IRA. The IRS imposes income limitations on Roth IRA contributions, with individual tax filers earning more than $161,000 or Married Filing Joint filers earning more than $240,000 phased out of making standard contributions (2024 income limits).

As a result, high-income individuals and couples who exceed these thresholds must follow a two-step process to fund their Roth IRAs. First, they make a non-deductible IRA contribution and subsequently convert it to their Roth IRA. Since the IRA contribution was not claimed as a deduction and the conversion happens before any appreciation occurs, this is a non-taxable event. The contribution limit for this strategy aligns with the annual IRA/Roth IRA limits: $7,000 + $1,000 catch-up for anyone over age 50 (2024 limits).

However, this strategy does not work well if you have current balances in a Traditional IRA, Simple IRA, or SEP IRA, as the IRS views these assets as part of the IRA aggregation calculation, potentially triggering taxable events. To avoid taxes being triggered, it is recommended to have a $0 balance in any pre-tax IRA account type.

 

Mega Backdoor Roth

The Mega Backdoor Roth, while less known than the Backdoor Roth IRA, follows a similar principle but it applies to your 401(k) or 403(b). To implement this strategy, you should first maximize the employee contribution of your 401(k) with a $23,000 + $7,500 catch-up if you’re over age 50 (2024 limits). The total IRS cap on 401(k) contributions between employer and employee contributions is $69,000 (or $76,500 if over age 50). If your employer match or profit sharing is less than $46,000, you can contribute the remaining amount as an after-tax contribution and subsequently convert that after-tax balance to your Roth.

Example

Consider John, age 45, is maximizing his 401(k) with $23,000, and his total employer contribution is $16,000. John could contribute $30,000 as an after-tax contribution and then convert it to his Roth. However, this strategy is contingent on several factors:

  • You must participate in a 401(k) or 403(b) plan.
  • Your plan document must allow “after-tax contributions.”
  • Your plan must also allow you to move money from your after-tax portion into your Roth portion (or allow you to take in-service distributions from your after-tax portion and roll these into your Roth IRA).
  • You must have the cashflows to support this level of contributions.

If you’re unsure whether your plan allows these steps, contact your Human Resources department or 401(k) plan administrator.

Order of funding

To optimize your tax-free contributions, here is the commonly followed order of funding:

  1. Max your employer-sponsored plan (plus catch-up if applicable)
  2. Max Backdoor Roth IRA
  3. Max Mega Backdoor Roth through an employer-sponsored plan
  4. Any excess cashflows can be invested in a taxable investment account

Roth accounts grow tax-free, and distributions can be taken tax-free as long as the accounts meet the criteria for qualified distributions. Roth IRA distributions do not count as Modified Adjusted Gross Income (MAGI), offering added flexibility around Medicare premiums and taxation of other benefits. Due to the potential tax pitfalls if not executed correctly, we advise individuals to consult their CPA and financial advisor for comprehensive tax planning.

 

Consult With a Lutz Financial Advisor

Lutz Financial's advisors collaborate with our in-house tax planning experts to develop a retirement strategy that works best for you. If you have any questions or would like to set up a consultation, please contact us.

IMPORTANT DISCLOSURE INFORMATION

Hodgson, Tom_Color Large-1
  • Maximizer, Analytical, Futuristic, Relator, Strategic

Tom Hodgson, CFP®

Investment Advisor

Tom Hodgson, Investment Advisor, began his career in 2011. He has built extensive expertise in financial planning and wealth management while taking on leadership roles in training and estate planning initiatives. 

Focusing on helping clients achieve their most important goals, Tom creates tailored financial strategies for everything from retirement preparation to education funding. He stays closely connected with clients' changing needs, regularly reviewing their investment portfolios and providing practical guidance. Tom finds fulfillment in helping clients who have worked hard in their businesses or professions feel confident about their financial future, whether they're saving for college, a wedding, or planning for retirement. 

 

Tom lives in Elkhorn, NE, with his wife Carlie, their children Aubrey and Jack, and their dog Oakley. Outside the office, he can be found following the Jays and Huskers, cooking, golfing, and enjoying outdoor activities including hunting and fishing. 

402.827.2059

thodgson@lutz.us

Connect on LinkedIn

Recent News & Insights

Accounting
Tax Highlights of the Proposed “The One, Big, Beautiful Bill”
On May 22, 2025, the U.S. House of Representatives passed a sweeping 1,116-page bill titled ...
Read More
Recent News
Lutz Announces Redemption of Ron Nebbia’s Shares
Lutz, a Nebraska-based business solutions firm, announces the redemption of ownership held by ...
Read More
Market Commentary
2025 Has Been a Boring Year + 5.14.25
2025 Has Been a Boring Year Imagine you went to sleep on New Year’s Eve and just woke up ...
Read More
Job Seeker
5 Ways to Maximize Your Chances of Employment
Let’s face it, job searching can be a rollercoaster. One moment you're motivated, the next ...
Read More
module-bg-desktop module-bg-mobile

Let’s get you where you want to go.

We work to simplify complexities, help make critical business decisions, and confidently focus on the things that are truly important to you. We embrace your business as our own to spark the right solutions and help you thrive.
Contact Us
Lutz-Logo-white
  • Services
    • Accounting
    • Consulting
    • Financial
    • M&A
    • Talent
    • Tech
  • About
    • Our Company
    • Our Team
    • Offices
    • Careers
    • Internships
    • Current Opportunities
  • Client Portal
    • Make a Payment
    • Accounting Client Portal
    • Financial Client Portal
    • Send Files Securely
    Submit RFP
TOLL-FREE: 866.577.0780 | © Lutz & company, PC 2025 | Privacy Policy
Follow us on Facebook Follow us on LinkedIn Twitter - X Logo Follow us on Instagram Follow us on Facebook