Creative Savers: Finding Big Money in Your 401(K)

Creative savers are finding big money by rolling over post tax cash to a Roth IRA can really pay off. They are realizing a new way of supersizing their individual retirement accounts. It’s allowing employees to stack away $30,000 or more per year after tax dollars into a 401(k) savings plan, then roll that money to a Roth IRA.

Once tucked into a Roth that future earnings will be tax-free when you retire and tax fax free to your heirs if there is any money left over. You can call this the mega backdoor to the Roth because it skirts the limit of the $6500 annual contribution for those who are 50 and older.

This is the sweet spot for high income earners because they are excluded from contributing to the Roth. Plus entrepreneurs who pay themselves a paycheck can sock away more money into their retirement.

“This is a big deal if you can do it,” says Ed Slott, IRA expert based in Rockville Centre, New York. You are talking about stashing away up to $59,000 per year into your retirement savings. The key is to move it quickly and act soon before tax reforms close this loophole.

Who Can Do It?

Ahhh here is the catch. Not everyone can do this. Your employer must allow after tax contributions. Plus your employer must permit you to make withdrawals from your 401(k) and roll the after tax dollars into a Roth each year while you still are working for them. Once you know you can do this continue reading.


Employees can contribute up to $18k in pretax dollars into their 401(k) plans and an extra $6000 if they are 50 and older. Many plans let you “top up” annual contributions up to $59,000 if you are at least 50 (business owners make sure your plans reflect this). Let’s say your pretax contributions are $25,000, you still can add up to $34,000 more. That is big money for your future.


Now you rollover your after tax contributions to a Roth IRA. It shouldn’t trigger any taxes on your 401(k) because it wasn’t in your account long enough to generate any earnings. Once it’s in your Roth your earnings will be tax free. If you are taxed there are ways to postpone by rolling the earnings into a traditional IRA and it will not be taxed until you withdrawal it later.

Hire a Professional

Please consult a professional so you can do this the correct way. Does it sound complicated? It is and this is why you find a professional who’s business is retirement planning. Mistakes can be costly. President Obama’s proposed budgets are seeking to curtail this strategy. The payoff is huge for those who follow the rules correctly.

Charles Fitzgerald Butler, is an entrepreneur and expert in internet marketing. Charles has a passion for helping people start and run successful home businesses. You can partner with Charles and start building multiple income streams from your home. Charles’ goal is to help all who partner with him achieve cash flow and profits from their business.