If you’re looking to supercharge your retirement savings in 2024, you could potentially contribute up to $84,500 to a Roth account using a combination of strategies. In this post, I’ll walk you through how you can maximize your contributions while navigating the requirements and rules, so you avoid any messy tax situations.
Understanding the Basics: What is a Roth Account?
Before diving into the details, let’s establish what a Roth account is and how it works. Roth accounts are great for tax-free growth and withdrawals, but they have specific guidelines you need to be aware of.
Here are three key things to know:
After-tax contributions: You don’t get a tax deduction for money you contribute to a Roth account.
Tax-free growth: Any earnings from dividends, interest, and capital gains in a Roth account grow without being taxed.
Tax-free withdrawals: You can withdraw your earnings tax-free, as long as two conditions are met: you’re at least 59 ½ years old and you’ve held the account for at least 5 years.
While you can always withdraw your contributions (the amount you originally put in) tax-free, the earnings need to meet the above conditions to remain tax-free.
Roth IRAs vs. Employer-Sponsored Roth Plans
There are two types of Roth accounts you need to know about:
Employer-sponsored Roth accounts: These include Roth 401(k)s, Roth 403(b)s, and Roth 457 plans. These are tied to your job.
Roth IRAs: Individual accounts that you manage independently of any employer.
Each type of account has different contribution limits and rules, which brings us to why the "backdoor" and "mega backdoor" strategies can be so helpful.
The Backdoor Roth IRA Strategy
Roth IRAs have income limits that phase out your ability to contribute directly if you earn too much. In 2024, if you’re a single filer, the phase-out range is between $146,000 and $161,000. If you earn below $146,000, you can contribute up to $7,000 (or $8,000 if you're over 50). If you earn more than $161,000, you can’t contribute directly. The phaseout for married couples filing jointy is $230,000 - $240,000.
But that’s where the backdoor Roth IRA comes in. Here’s how it works:
You make a non-deductible contribution to a traditional IRA, which anyone can do regardless of income.
While this process is simple, there are a few important rules to keep in mind:
File Form 8606: You need to tell the IRS that your traditional IRA contribution was non-deductible, so you don’t get taxed again during the conversion.
The Pro-Rata Rule: If you have pre-tax money in any of your traditional IRAs, a portion of your conversion could be taxable. To avoid this, you might consider rolling pre-tax IRA funds into a 401(k) if possible.
The Mega Backdoor Roth: How to Contribute Even More
If your employer offers a Roth 401(k) and allows after-tax contributions, you can use the mega backdoor Roth strategy. In 2024, you could contribute up to $84,500 using this strategy as well as the backdoor Roth IRA.
Here’s how it works:
The 2024 limit for salary deferral (the amount you can contribute from your paycheck) is $23,000. If you’re over 50, you can add another $7,500 for a total of $30,500.
The combined limit for all contributions (including employer matches) is $69,000 (or $76,500 if you’re over 50).
You can contribute after-tax dollars up to the difference between the $69,000 limit and your salary deferral plus employer contributions ($46,000 if your employer makes no contributions).
Once you contribute those after-tax dollars, you can convert them to a Roth account—either in your 401(k) or a Roth IRA—making them eligible for tax-free growth and withdrawals.
Rules, Tips, and Common Pitfalls
Convert Contributions Quickly: If you’re using either the backdoor Roth IRA or mega backdoor Roth, try to convert your contributions as soon as possible. Any growth or earnings that occur before the conversion will be taxable.
Check with Your Employer: Not all 401(k) plans allow after-tax contributions. Check your Summary Plan Description or contact your plan administrator to see if you’re eligible.
Pre-Tax vs. Roth Contributions: If you’re in a high tax bracket, you might want to prioritize pre-tax 401(k) contributions to lower your taxable income this year, and then max out your after-tax contributions with the mega backdoor Roth.
Recap: How to Maximize Roth Contributions in 2024
If you’re over 50, here’s how the math breaks down:
Backdoor Roth IRA: $8,000
Roth 401(k) salary deferral: $30,500
Mega backdoor Roth after-tax contribution: $46,000
That’s a total of $84,500 you could potentially contribute to a Roth account in 2024. Keep in mind that these limits change with inflation, so stay updated as the IRS adjusts them annually.
If you’re in a position to maximize your contributions and take full advantage of these strategies, make sure you consult with a licensed tax professional to ensure everything is done correctly and efficiently.
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About the author
Jake Skelhorn
Jake is a CFP Professional with a focus on planning for both traditional and early retirement. He’s a Florida native, growing up in Fort Lauderdale and now residing in Jacksonville with his husband Chris and their 120-lb “puppy” Barli. Jake enjoys cooking (favorite cuisine to make is Thai), traveling, and spending time with friends and family as much as possible.
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