In this episode, John and Nick explain the Mega Backdoor Roth strategy and how high-income savers may be able to contribute significantly more to Roth accounts through their workplace retirement plans. They break down the rules, requirements, and potential tax benefits, while highlighting who may benefit most from this advanced retirement planning strategy. Helpful Information: PFG Website: https://www.pfgprivatewealth.com/ Contact: 813-286-7776 Email: info@pfgprivatewealth.com Disclaimer: PFG Private Wealth Management, LLC is an SEC Registered Investment Advisor. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. The topics and information discussed during this podcast are not intended to provide tax or legal advice. Investments involve risk, and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial advisor and/or tax professional before implementing any strategy discussed on this podcast. Past performance is not indicative of future performance. Insurance products and services are offered and sold through individually licensed and appointed insurance agents. Marc: This week on Retirement Planning Redefined, part two of our conversation about the backdoor Roth IRA. This is the mega backdoor Roth. Let's get into that conversation with John and Nick. Hey, everybody. Welcome into the podcast. This is Retirement Planning Redefined with John and Nick from PFG Private Wealth. Find the guys online at pfgprivatewealth.com. That's pfgprivatewealth.com. And it sounds like something, guys, out of a, I don't know, out of a superhero story or something. It's the mega backdoor Roth. And that's the topic of the conversation this week. So we're just going to dive right in because there's a lot to cover anyway. So we'll just jump in and get going. I guess, Nick, if you want, why don't you talk to us, give us a really, really short recap of what we talked about last week for those who may have not listened to that podcast. And then what's to understand what to do if you want more than the IRA limits and just kind of set us up here a little bit for understanding the mega backdoor Roth. Nick: Sure. So just a quick recap on a Roth IRA and the benefits of it. So contributions typically are with after tax dollars. So income that has already been taxed. The account grows tax deferred, so you don't receive a 1099 each year. And then the withdrawals are tax-free after 59 and a half. The Roth IRAs do not require required minimum distributions, which are nice. And they're a great place to have more of your growth oriented assets because of the tax-free upside and the fact that you can leave a tax-free account to your beneficiaries. Marc: Gotcha. And I guess some confusion here, guys, and help me out to understand this a little bit, is that we've been thinking about the Roth. We typically just, I've been saying just the Roth, that's the IRA. But because they have now created the Roth 401Ks, that adds a little confusion to the conversation as well. It's always funny because the word contribution and contribution, excuse me, and conversion confuse people. So it just confused me right now. But also 401, the Roth 401k and then the Roth IRA is now confusing people as well too. So are we talking a little bit more about on this episode, that mega backdoor Roth being from the workplace plan? Is that what we're looking at here? John: Yeah. So we'll have to leave the IRA world and jump into the 401k plans where they have much larger contribution limits, which is where we get our superhero work. Marc: The mega term. Okay. Yeah. John: Exactly. We could do a lot more of what we discussed last week. So if you like the benefits Nick went over, this is a great way to really maximize those benefits. Marc: Okay. Well, let's start with the limits. What are the limits? I guess again, we're in the 401k plan now. John: Yeah. So for 2026, under the age of 50, standard contribution limit is 24,500. There is a catch-up, and for today's purpose, we'll just talk about the standard contribution. When you are talking catch-ups, just whatever we're discussing, add the catch-up to it. But for today's purpose, to keep it simple because we are going to do a deep dive into some of these numbers, let's just assume standard contribution limit, which for this year, 24,500. And what a lot of people aren't aware of because it typically doesn't apply is your total limit to the 401k contributions. Now this is employee and employer is actually 72,000 for 2026, and that gets adjusted up every year similar to the standard contribution limits. Marc: Oh, okay. Wow, that is a big number. John: Yeah, it's mega. Marc: Yeah, it's mega. Yeah. So why would the IRS build a $72,000 ceiling if they cap the personal down so low? So I guess what's the other 47,500? John: Yeah. So one of the things that we focus on is 401ks, which comes with employee benefits, perks, things like that. And some people hear the term matches quite a bit. Marc: Sure. John: Another one is profit sharings. So that $72,000 limit is basically the IRS saying, hey, the employee can do this amount, and if the employer's going to give X amount of benefits, it really can't go over this $72,000 threshold. So that's pretty much what it is. The IRS basically said, hey, let's put some limits to this so we can't over commit to people or do ... They want to be able to provide a benefit, but not go crazy with it. So that's where we get the number. Nick: And to kind of summarize that, a away to think about it is that there are standard limits for the employee contributions. And sometimes as an example, we've seen clients say, we've told them, especially new clients, like, "Oh, well, I'm maxing it out when you include the employer match." And it's like, no, those contributions are for your dollars. And then this overall maximum amount that John's referring to is a combination of employee and employee dollars. So it's like two separate tranches within the same year of the same plan. John: To confuse everyone a little bit more, part of that 72,000 is, if your plan allows it, and we'll dive into this, is what they call the after tax contribution to a 401k. And I know we hit it last week, but that is something that goes into this feature, which is actually older than a Roth 401k, but it's not used very often or not many people are very aware of it, but we'll jump into it today. Marc: Okay. So the mega backdoor strategy is the employee kind of hacking, if you will, this potentially unused space. So can one of you guys maybe do a numbers example where it maybe will make a little bit more sense for folks? Nick: Sure. I'll kind of break it down and give an example. So let's say that there's a 40-year-old and because they're under age 50, their standard contribution into their retirement plan is going to be 24,500, so around two grand a month. In this case, their employer matches and the total amount of the match throughout the year is 10,500. So when you combine those two amounts, the total balance for the year, not including any gains or growth is going to be the total amount contributed is $35,000 for the year. So when we go back to that aggregate ceiling that John mentioned, the 72,000. So with our basic math, and if you're not good at basic math, now we have AI that helps us. Marc: You got 37 grand basically, right? Nick: Yep. So 72 minus 35 is $37,000. That is the gap or kind of the unused space below the IRS guideline. So that's the number that we can target should the plan allow it to build in or if you have ... All this is dependent upon cash flow, of course, but if you have the cash flow to be able to save additional money into the plan. Marc: Gotcha. Okay. So that makes a little bit more sense, right? So you've got that space. It's almost kind of like filling up your tax brackets before you move to the next tax bracket, if you want to think about it that way, not to add more confusion to it. John: Yeah. It's like filling up your gas in your tank here. I got this gap here. Let me, with the rest of this, like we said, Nick said, I said, if the plan allows it, I can do some after tax contribution up to that ceiling. Marc: So all right, with the Roth 401k existing now, and those contribution numbers are higher, because part of the reason for this hybrid guys, when they made the Roth 401k is you get the income limits of a traditional 401k, but you get the Roth benefits of the Roth IRA. That's why they kind of merged these two together because people often say, "Hey, I make too much money to use a Roth IRA." But the Roth 401k is higher. Isn't this just what this is, just a contribution to a 401k? It kind of feels like it. John: It’s not because the Roth 401k is a formal tax designation that falls under that standard contribution limit, that 24,500. Marc: Okay. All right. Back to the standard 24. Okay. Yeah. John: Yeah. Yeah. So kind of think about it that way. It's that, hey, your pre-tax 401k contribution and the Roth 401k contribution are subject to that standard contribution limit, which in 2026 it's 24,500. And with the Roth 401k, it's after tax money and growth is tax deferred and tax-free distribution. Where the after tax, and we talked about that in detail, it's after tax contribution, but the growth is tax deferred, but the growth if pulled out will be taxed, the earnings on that. So again, kind of caveat to understand the difference between those two contribution types. Marc: Gotcha. Nick: Yeah. And in general, a lot of the podcasts that we do are focused on broader base impacts a lot of people. This is definitely a niche sort of strategy. Th
