In 2022, Meta employees can contribute up to $30,250 to a Roth using the Mega Backdoor Roth provision within the Meta 401(k).
The Mega Backdoor Roth allows you to contribute after-tax dollars to your 401(k) and convert those dollars to a Roth.
If you are a Meta employee who is already contributing the maximum amount to your 401(k), this is a fantastic way to save even more for retirement.
Meta 401(k) Basics and the Meta Match
In 2022, you can contribute $20,500 into the 401(k) on either a pre-tax or Roth basis if you’re under 50. If you are 50 or older, you can contribute up to $27,000. If you turn 50 in 2022, you are able to take advantage of the catch-up contribution.
The difference between a traditional and Roth 401(k) comes down to when you pay taxes.
Traditional Pre-Tax 401(k): You make your contributions before taxes. You typically receive a tax break up front by lowering your current income tax bill; however, money withdrawn at retirement will be taxed.
We often recommend this strategy to high-income earners as it is one of the only ways you can reduce your taxable income.
Roth 401(k): With a Roth 401(k) you make your contributions after taxes. When you withdraw savings for retirement, you are not taxed.
We often recommend this strategy to younger savers who are in a lower tax bracket; however, a Roth 401(k) can also provide older savers the chance to benefit from tax-free distributions.
On top of your contribution, Meta will match $1 for $1 of your 401(k) contribution up to 50% of the IRS Federal Limit of your compensation deferrals.
|Your Age||Your Contribution||Meta’s Contribution|
|Under 50 years old||$20,500||$10,250|
|50 years or older||$27,000||$13,500|
Meta Mega Backdoor Roth Example
In 2022, the IRS federal limit for total contributions to a 401(k) is $61,000 for people under 50. If you are 50 or older the IRS limit increases to $67,500.
For Meta employees this means you have an additional ~$30,000 to contribute to your 401(k) after-tax and convert those dollars to a Roth.
The $61,000 IRS federal limit makes it possible to contribute up to an additional $30,250 in after-tax dollars to your 401(k).
If you are older than 50 or turning 50 by the end of the year, the Mega Backdoor numbers are a little different.
You are eligible to contribute a total of $27,000 in after-tax dollars to your 401(k).
Meta will match $1 for $1 of your 401(k) contribution up to 50% of the IRS Federal Limit of your compensation deferrals, including the catch-up contribution, totaling $13,500.
Your contribution elections need to be made within Fidelity Net Benefits.
It is very important that after you make your decision on the amount of after-tax dollars you will contribute, you select ‘Convert after-tax to Roth’. That way any growth within the account will essentially never be taxed.
Meta Mega Backdoor Roth and Taxes
Many of you reading this are saving money above and beyond your regular 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 could all be tax-free now and when you retire! Plus, the tax-free growth of all those dollars compounding is an incredibly powerful too, especially over the long term!
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.
Schedule time with one of our advisors to discuss the Mega Backdoor Roth or any of the other many benefits at Meta.