AHN Mega Backdoor Roth 2024 Updates

In this video, Jamison provides a detailed exploration of the Mega Backdoor Roth strategy tailored for high-income earners employed at AHN (Allegheny Health Network) in Pittsburgh. He breaks down the 401(k) funding components, focusing on the 402(g) limit, the employer match, and the 415(c) limit. Jamison explains AHN’s after-tax contribution option, emphasizing the tax implications and the potential for tax savings. The Mega Backdoor Roth strategy is then elucidated, showcasing how annual after-tax contributions can be converted to Roth, allowing individuals to maximize their Roth 401(k) contributions well beyond conventional limits. Jamison concludes with a recommendation to proactively set up the strategy and underscores the potential for substantial tax savings, making it a must-watch for AHN employees looking to optimize their 401(k) plans.

Video Transcript

If you are a high income earner and you’re employed at AHN, Allegheny Health Network here in Pittsburgh, we’re going to take a deep dive into how you can save literally hundreds of thousands of dollars by efficiently funding your 401 and saving on taxes. So we’re going to go through this strategy. It’s called the mega backdoor Roth strategy, applies to your ahn. Four hundred and one k plan. We’re going to take a deep dive and go through it in great detail. A couple of components of the 401K funding that we want to be aware of. The first one, which most people should be familiar with, is what’s called the 402 g limit.


The 402 g limit is your salary deferral that you can defer from your paycheck into the can either be Roth or pretax limit for 2024 is $23,000 if you’re under the age of 50. If you are over the age of 50, you can defer an additional $7,500 is for 30,500. Again, that can be Roth or pretax, most of the time, going to recommend Roth. Ahn then is going to match. They’re going to give you a free 1%, and then if you contribute at least 5%, they give you another 4%. That is only on the first $345,000 of income. That’s a 2024 limit. So if you’re making half a million dollars, that match only occurs on the first $345,000, not your full $500,000 income. If you’re maximizing that fully, that’s an additional $17,250. That is pre tax. That is not Roth.


And so your total, going into the short of the four one five c limit, which, if you’re under the age of 50, is $69,000. That’s the total amount that can go into an employer. Four hundred and one k, four three b pay. If you’re over the age of 50, you get that $7,500 catch up. 76,500 can go into the plan. So AHn does not allow you to maximize this full $69,000, but you can get pretty close. What they offer is called an after tax contribution. The max that they allow you to do is 5% of your income. And again, that is only on the first $345,000. So if you’re maximizing your. Again, we’re going to say Roth, 23,000. You’re getting the match. You can do now another 5% into after tax. What the after tax is, it’s after tax contribution.


You’ve already paid taxes on it, all the accumulation is going to grow tax deferred. However, when you pull it out in retirement or later in your life, you pay income tax on the gain can be pretty tax inefficient. Or I guess I should say there is a more tax efficient way to do it. If that big number accumulates over your course of employment, there could be a pretty big tax bill when you go to pull that out. It could be hundreds of thousands of dollars in taxes from all the growth on the accumulation. Ahn allows you to do this mega backdoor Roth strategy, which is taking the after tax every year, converting it to Roth. You can keep it in the plan. Do an in plan Roth conversion, convert it to your Roth four hundred and one k.


And now you’re getting the 23,402 g deferral plus the $17,250 all into Roth for a total of $40,250 into your Roth 401K. Again under the age of 50. Over the age of 50, get another $7,500. That is well above what most people think is the limit of 23,000. There is zero income limit on this, like a Roth IRA or backdoor Roth IRA. You can fund this if you’re making $100,000 or a million dollars a year. It does not matter. Definitely recommend it. If you’re a young physician or employee that has a lot of tax free earning in the Roth account ahead of you most of the time still makes sense to fund Roth even if you’re an older and closer to retirement.


But those are specific recommendations depending on your situation, taxes, assets, goals, et cetera, would highly recommend maximizing this again could save hundreds of thousands of dollars on taxes. And to properly set this up, we recommend 7% into the Roth as your deferral. That allows you to maximize the match. Get that 5% match and then 5% again. This is free. They’re giving that to you and then 5% after tax that then gets converted to Roth each year. If you’re an EWA client, we are really proactive about reaching out to make sure that this gets completed by the end of the year and that you’re on track to maximize it. If you are not an EWA client, however, and you have questions or would like help implementing this, feel free to reach out.


We’re happy to help offer an introductory consultation and help you make sure this gets implemented because this again will save you hundreds of thousands of dollars on taxes.

Show Full Transcript

Recommended Videos

What are Donor Advised Funds?
What You Need to Know About Spousal Lifetime Access Trusts (SLATs)
Asset Protection Strategies
Win More by Losing Less
Tips for Long Term Investing
Weighing the Pros and Cons of Passive Real Estate Income