How can I leverage MBDR to surpass the 22k pre-tax 401k limit?
Related questions: What benefits can I get while OE and multiple companies offer an after-tax 401k?
Solution:Jump to solution
Notes: for W2 FTE roles. Also note mega backdoor 401k != backdoor ira
ALSO NOTE: This was written back in 2022 when the limits were 20.5k and 61k, respectively. For 2023 that increased to 22.5k and 66k and for 2024 it will be increased from 23k and 69k, respectively.
I've seen this get brought up a lot on the discord, so I'll share it here. Yes, you can stack the 61k after-tax contribution limits per employer....
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Solution
conscious-sapphire•10mo ago
Notes: for W2 FTE roles. Also note mega backdoor 401k != backdoor ira
ALSO NOTE: This was written back in 2022 when the limits were 20.5k and 61k, respectively. For 2023 that increased to 22.5k and 66k and for 2024 it will be increased from 23k and 69k, respectively.
I've seen this get brought up a lot on the discord, so I'll share it here. Yes, you can stack the 61k after-tax contribution limits per employer.
From the IRS themselves: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits
Remember that annual contributions to all of your accounts maintained by one employer (and any related employer) - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures, to your accounts, but not including catch-up contributions - may not exceed the lesser of 100% of your compensation or $61,000 for 2022(And FYI, you can further increase this if you're over 50 and are doing catch up contributions) This doesn't get talked a lot in a non-OE context, because this is a strategy usually thought about for high income earners, and it's even more rarer to think that you can do this across employers if you aren't OE. You can also see this bogleheads discussion from early 2020 https://www.bogleheads.org/forum/viewtopic.php?t=314378 In the pre-OE scenario, in order to actually do this, you'd have to leave a very high paying from say in June (and let's say you frontloaded both the pre-tax and after-tax contributions), and join another high paying job shortly after within the same year. The 61k limit "resets" to the new employer (but keep in mind the 20.5k deferrals are still counted for yourself, the individual). Here are some example strategies (NOTE: these are using 2021 limits, adjust your limits to 2023/2024) : Scenario 1 - J1 offers an after-tax 401k, but J2 does not Strategy 1: You put the full 20.5k pretax deferrals in the pre-tax 401k Let’s say the company matches 10k contributions Now, you can put in (61k - 20.5k - 10k) = 30.5k in the aftertax 401k. Total in 401k: 61k Unfortunately, you can’t put any money in J2 this way, since J2 doesn't have an after-tax 401k, but you already used the full deferrals at J1 Strategy 2 You put the full 20.5k pretax deferrals in the pre-tax 401k for J2. Let’s say company doesn’t match (hence why strategy 1 seemed optimal at first) So now you put the entire 61k after-tax into J1’s after-tax 401k. Total in 401k: 20.5k from J2, and 61k from J1 = 81.5k. Scenario 2 - J1 and J2 offers an after–tax 401k You put the full 20.5k pretax deferrals in the pre-tax 401k Let’s say the company matches 10k contributions Now, you can put in (61k - 20.5k - 10k) = 30.5k in the aftertax 401k at J1. Now, you put the entire 61k in J2 (cause you used up your 20.5k pre-tax at J1) Total in 401k: 61k+61k = 122k Note: that the two conditions needed is that the employer has to offer an after-tax 401k (not roth 401k), AND you need to be able to do an in-plan conversion from the after-tax 401k to the roth 401k. With OE, saving for retirement becomes so much more lucrative because you can double dip on the insane retirement savings offered by the mega backdoor roth 401k. Plus, the gains for roth 401k are tax free and withdrawn tax free. See: https://www.madfientist.com/after-tax-contributions/
conscious-sapphire•10mo ago
An example breakdown for the following scenario from 2022 and 2023:
J1 @ Meta (offers MBDR), full time w2
J2 @ DocuSign (Offers MBDR), full time w2
J3 doing C2C work for places like pinterest, intuit, etc
genetic-orange•4w ago
Backdoor Roth
Adding a couple more FAQ links for blog articles that go over BDR as well as MBDR:
- https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/
- https://www.physicianonfire.com/backdoor-roth-faq/
- https://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html