Mega Backdoor Roth IRA Without a High Income? Yes I did!


In my latest net worth update, I asked for advice on finding a better way to invest the extra money I had from cashing out my individual stock investments. One of my attending physicians suggested that I google something called the "Mega Backdoor Roth IRA." After some research on the topic, I decided to take advantage. I'm definitely not the first person to try the Mega Backdoor Roth IRA, but I may be the first who doesn't need to use the "backdoor" since I make so little income. So I suppose it's really just a Mega Roth IRA for me.  Read on to learn more...

Basics of the "Backdoor Roth IRA"

In order to continue this discussion on the Mega Roth IRA, you need some background knowledge about the Roth IRA and the Backdoor Roth IRA. It's called a "backdoor" because it's a roundabout way for people to invest into a Roth IRA account and enjoy its tax benefits despite earning too much income to contribute to one directly. Luckily there is a wealth of information on both topics available online. I recommend you visit the following resources for an introduction on the topic:

Basic Idea of a "backdoor Roth"

The "Mega Backdoor Roth IRA"

The "Mega" backdoor Roth IRA is made possible by the good graces of the US government and their friendly agents at the IRS. If you want to know what made all this possible, read IRS Notice 2014-54. For a more in-depth discussion, I recommend Michael Kitches' article - IRS Notice 2014-54 Acquiesces On Splitting After-Tax 401(k) Contributions For Roth Conversion.

The basic idea is that if you have a employer sponsored retirement plan such as a 401k or a 403b, you can defer up to $18,000/yr of income into that plan (as of 2017) and take a nice tax deduction - that's called the "limit on employee elective deferrals". However, a less commonly known limit is called the "Total annual contributions (annual additions)" and that limit is set at $54,000/yr. So what makes up the difference between that $18,000 and $54,000? Well, that $36,000 is made up of employer-matching contributions (if you're lucky), employer nonelective contributions and allocations of forfeitures. That $36,000 is what make the Mega backdoor Roth IRA so attractive.

Let's assume your employer doesn't match and leaves you with all $36,000 of that additional space available. Here is what a Mega backdoor Roth IRA looks like.

Basic idea of a "MEGA" Backdoor roth.  YEP That's $36,000 into your ROTH IRA!

For additional reading, here are some great online resources:


The Mega backdoor Roth IRA sounds amazing and it is. Unfortunately not everyone can benefit. Here are a couple of key caveats you need to consider:

  • Your employer must allow after-tax contributions into its 401k/403b plan.
  • The plan must allow for in-service withdrawals of such contributions - meaning you can withdraw while you still work for the same employer, hence "in-service".

If your employer does not offer these features, then I'm sorry. You should start lobbying your benefits department.

The FPMD Experience

As it turns out, my employer was kind enough to offer both of these features in our 403b plan. Since I have been looking for a tax-efficient way to invest the money from cashing out my stocks, I decided this was going to be my big purchase of the year. This past week, I dropped off a $36k check at my benefits department office. It's a strange feeling because I've never handed over such a large check before in my life. At the same time, I'm convinced I made a good investment in my future financial independence.

While it's unlikely that most of you (physicians in training) will have the disposable income to take advantage of the Mega backdoor Roth IRA currently. I hope you will keep this knowledge in the back of your mind, it may come into play when you get your first attending physician job.

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Future Proof, MD

Dr. Bo Liu is an aspiring radiologist-in-training and the founder and editor of the White Coat Money Blog.  He has an interest in interventional radiology and helping his medical colleagues get ahead in this mad world of medicine and money.  When he's not crushing the list at the PACS station or typing up your next favorite blog post, you can usually find him at the local badminton club, movie theater or the most recently opened restaurant.