Mega Back Door Roth

[AdmiralChz]

Oh I heard about this Mega Backdoor. One of the ortho groups near me did it as a whole (all of the partners), but the accounting was done wrong and now they owe something like 2-3x what they would have otherwise in income tax.

One of my partners asked a local accountant and literally the response was “do you like being audited?” Fun!

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[sevoflurane]

Megaback door roth is 1000% legit.

 

[linkin06]

Oh I heard about this Mega Backdoor. One of the ortho groups near me did it as a whole (all of the partners), but the accounting was done wrong and now they owe something like 2-3x what they would have otherwise in income tax.

One of my partners asked a local accountant and literally the response was “do you like being audited?” Fun!

so who messed up? user error?

 

[aneftp]

For those young millennials. The history lesson is this. The mega back door roth really was invented circa 2006/2007. For tax year 2010 ONLY. You could convert your entire pretax portfolio to post tax Roth in tax year 2010

Of course you would have to pay taxes on the converted amount. But the law said u had two years to pay those taxes owed.

That was the original real mega backdoor roth since income limits were removed.

So you millennials playing checkers with $6000-50k backdoor roth these days. We older folks played chess with 1-10 million dollar real mega backdoor roth conversion in 2010. And not dealing with 3.8% Medicare surtax either or the 0.9% Medicare surtax

sucks they removed the social security loophole in 2011 where you could collect ssn benefits at age 62 and repay it back at age 67 interest free but get the step up full ssn benefits. It was a de facto interest free loan hedging your bet you could live 5 extra years and if you did. You could collect the higher ssn benefits by repaying back the 5 years of ssn benefits you started collecting at age 62

 

[AdmiralChz]

so who messed up? user error?

Not sure, but one of my partners was having a discussion about backdoors and mega backdoors and the orthopod interjected with “DON’T DO IT”

My accountant has said the same and refuses to participate. But hey, to each their own - the same folks doing this are the ones claiming thousands on deductions for their spouses and kids cars, home office, etc... so engaging in high risk and dubious deductions. I guarantee this will be closed when the Dems get more governmental control and I can’t say I disagree with it.

 

[mmag]

To be able to do the Mega Back Door Roth (IRA), your 401k plan needs to have some very specific provisions. Not all AMC 401k (and not all non-AMC PP 401k for that matter either) have all those so you'll have to ask your plan administrator.

If you can max out 57k/yr pretax into your 401k through profit sharing, employer match, employee contributions then Mega Back Door Roth IRA is not super helpful.

1. Allow post tax 401k contributions
2. Allow in service (while still working at the company) distributions out of the 401k into your Roth IRA

 

[mmag]

Not sure, but one of my partners was having a discussion about backdoors and mega backdoors and the orthopod interjected with “DON’T DO IT”

My accountant has said the same and refuses to participate. But hey, to each their own - the same folks doing this are the ones claiming thousands on deductions for their spouses and kids cars, home office, etc... so engaging in high risk and dubious deductions. I guarantee this will be closed when the Dems get more governmental control and I can’t say I disagree with it.

Usually with smaller groups, it's the plan administrator that drops the ball (or poor communications with the plan administrator). Sounds like the money was not kept in a separate post tax 401k account/bucket within the 401k plan or gains were not accounted for properly. The plan could also have not gotten a letter of determination from the IRS to protect itself - all things that can go wrong if you go with a small/local/inexperienced plan administrator/recordkeeper.
Large tech companies like Microsoft, Facebook, and Google have allowed their employees to do Megabackoor Roth (whether it's to roll into a Roth 401k at the company or personal Roth IRA) for many years now. They have the money and legal resources to make sure it's legit and audit proof for themselves and their employees.
It's pretty easy for your accountant to be conservative and say no to backdoor Roth because it's less work and zero chance of audit (btw lots of accountants are like this). It's like not extubating anyone in the ICU until they are ready walk out of the hospital and can pull the tube out themselves - zero failed extubation rate!