High-earning couples in shared 401(k) plans can contribute $94,000 tax-free annually using after-tax conversions and HSAs.
A married couple earning $185,000 each can contribute up to $94,000 annually to Roth accounts through a combination of Mega Backdoor Roth conversions, backdoor Roth IRAs, and HSA contributions. The strategy leverages after-tax 401(k) contributions and in-plan Roth conversions to bypass income limits on direct Roth contributions.
The approach requires a 401(k) plan permitting after-tax contributions and in-plan conversions, along with eliminating pre-tax IRA balances to avoid the pro-rata rule. Timing conversions in the same pay cycle as contributions minimizes taxable earnings. Over time, this could grow to $3.4 million in tax-free assets by retirement, assuming 7% annual returns.
This tactic is particularly relevant for high earners already maxing out traditional 401(k) deferrals, offering a way to significantly expand tax-free retirement savings.