A mega backdoor contribution is a type of contribution to a 401(k) retirement plan that is above and beyond the normal contribution limits. It is called a “mega backdoor” contribution because it allows individuals to contribute significantly more to their 401(k) plan than they would normally be able to.
To make a mega backdoor contribution, an individual must first make the maximum contribution to their 401(k) plan that is allowed under the normal contribution limits. This is currently $22,500 in 2023.
In addition, an individual can also make catch-up contributions if they are over the age of 50. The catch-up contribution limit in 2023 is $7,500. Catch-up contributions are an additional amount that individuals can contribute to their 401(k) plan on a tax-deferred basis once they reach a certain age.
Once the individual has made the maximum contribution to their 401(k) plan, they can then make a mega backdoor contribution. This involves making a contribution to a non-qualified deferred compensation plan, which is a type of retirement plan that is not subject to the same contribution limits as a 401(k) plan. The individual can then request that the contribution be transferred to their 401(k) plan as a mega backdoor contribution.
Mega backdoor contributions are not available to all individuals, and there are certain rules and restrictions that apply. For example, not all 401(k) plans allow mega backdoor contributions, and there may be limits on the amount of the contribution that can be made.
It is important to understand the rules and restrictions that apply to mega backdoor contributions and to consult with a financial professional before making a contribution.
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