Nike Mega Backdoor Roth Basics

The Mega Backdoor Roth 401(k) is one of the best employee benefits available to Nike employees. In this video we help you understand what the Mega Backdoor Roth is and how it can help you invest more towards retirement and reduce some of your future tax liabilities.

How Much Can You Contribute to the Nike Mega Backdoor Roth?

You probably know that within your Nike 401(k) you can contribute up to $19,500 per year if you’re under 50. Employees who are 50 years old and older can contribute an additional $6,500 a year ($26,000 total). Nike will match 5% of your annual salary as long as you contribute at least that amount to your 401(k).  We call this match “free money” – you will want to make sure you are contributing at least 5% of your salary to ensure you receive the match from Nike.

In order to take advantage of the Mega Backdoor Roth benefit, you must be contributing the maximum amount to your 401(k). In our example below we will walk through how this benefit works for someone under 50 years old, earning $200,000/ year, contributing $19,500 and receiving the full Nike match, $10,000.

Some of you may not know that there is a federal limit for total dollars going into a 401(k). In 2021, this limit is $58,000. The Mega Backdoor Roth feature within your Nike 401(k) enables you to contribute some of your after-tax dollars into your 401(k) and convert them to a Roth.  Nike allows you to contribute 3% of your annual salary with a maximum of $8,700, into the Mega Backdoor Roth. In this example our employee can contribute an additional $6,000. Now this is where you begin to see how powerful this benefit really is. Once you contribute the additional $6,000 into your 401(k), you can convert those same dollars to a Roth within the plan. This process is not automatic—you will need to call the Nike 401(k) phone line to request the conversion.

 

Will Contributions to the Nike Mega Backdoor Roth Reduce Taxes?

Contributing to the Nike Mega Backdoor Roth can be a strategy to help you reduce future tax liabilities. Many of you reading this are saving money above and beyond your 401(k) and more than likely you’re saving into a brokerage account (individual account, joint account, etc.). Within these accounts you hold investments, which inevitably over time kick off interest income, dividends, and capital gains. All of these events are taxable within brokerage accounts. Over the long-run, this taxation can create a substantial tax drag on performance. Within a Roth you could hold the exact same investments, but the same interest income, dividends, and capital gains would all be tax-free now and in retirement! Additionally, when you do retire, having additional money in a Roth account enables you to manage your retirement distributions and give you more control over your taxable income, which could allow you to save even more from a tax perspective.

Is the Mega Backdoor Roth Conversion the Right Strategy for You?

We think the Mega Backdoor Roth is a fantastic way to invest towards your retirement and reduce future taxes. Most companies and most 401(k) plans don’t include the Mega Backdoor Roth; however, we are beginning to see it become more common and we encourage employees who have access to this tool to consider incorporating this into their financial plan.

Questions About the Nike Mega Backdoor Roth?

We have years of experience working with Nike executives and employees within the tech industry (Microsoft, Amazon, Intel, etc.) helping them understand and leverage their complex compensation benefits. We offer an integrated set of financial planning services to help you maximize your wealth while growing your own understanding of your assets, compensation, and pursuing your long-term financial goals.

 

You can schedule time to talk with someone on our team to discuss your unique situation.