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Microsoft Mega Backdoor Roth

The mega backdoor Roth is a great planning tool for high earners to get more money into tax advantaged accounts. Microsoft employees can contribute up to $30,250 into a Roth 401K account in 2022 by utilizing the Microsoft Mega Backdoor Roth!

Implementing the Microsoft Mega Backdoor Roth

Step 1– Maximize your traditional 401K contribution. The contribution limit for 2022 is $20,500. This contribution can be either a Roth or traditional contribution. Most high earners elect the traditional (tax deferred) contribution. 

Step 2- Microsoft will match 50% of your contributions. Thus if you’ve maxed out your contribution Microsoft will contribute $10,250.

Step 3- Make after-tax contributions up to the federal limit. The federal limit for total contributions to a 401K for 2022 is $61K. Thus once you’ve contributed the $20,500 max and Microsoft matched $10,250, you have another $30,250 you can contribute to reach the overall 401K limit. This contribution will be made on an after-tax basis (meaning you receive no deduction from your taxable income for this contribution). 

Step 4– Convert your after-tax contributions to a Roth by utilizing the Roth in plan conversion option in Microsoft’s 401K plan (Convert After-tax to Roth). Then you’ve completed the mega backdoor Roth conversion! 

Here’s another graphic showing the Mega Backdoor Roth at Microsoft:

Microsoft Mega Backdoor Roth Conversion for Employees 50 and Over

Those aged 50 and over can make additional catch-up contributions to their 401K plan of $6,500 for 2022. That means the traditional contribution component rises to $27K and the overall 401K limit increases to $67,500. 

If you want to discuss implementing a backdoor Roth conversion or your financial situation, schedule a complimentary call today

Scott Caufield, CFA, CPA