In 2023, Nike employees can contribute thousands to a Roth using the Mega Backdoor Roth provision within the Nike 401(k).
The Mega Backdoor Roth allows you to contribute after-tax dollars to your 401(k) and then convert those dollars to Roth.
If you are already contributing the maximum amount to your Nike 401(k), this is a fantastic way to save even more for retirement. In our opinion, the Mega Backdoor Roth is one of the best employee benefits available to Nike employees.
Tax-Free Growth on After-Tax Roth Contributions
The Mega Backdoor Roth is a way for high-income earners to contribute after-tax dollars to their 401(k) over and above the $22,500 / $30,000 401(k) contribution limit and then immediately convert the after-tax dollars to their Roth 401(k).
One of the biggest advantages of a Roth is that your contributions and any interest or investment gains grow tax-free, and will also be tax-free when you access them in retirement. Having additional money in a Roth account enables you to manage your retirement distributions. This gives you more control over future taxable income.
Nike 401(k) Basics and the Nike Employer Match
Before we dive into an example of the Mega Backdoor Roth, it may be helpful to understand the basics of the Nike 401(k) plan and the Nike employer match.
In 2023, you can contribute the following to your 401(k):
- Under 50: $22,500
- 50 and older: $30,000 if you are 50 or older ($22,500 plus a $7,500 catch-up contribution).
You can make these contributions on a pre-tax or Roth basis.
The difference between a traditional and Roth 401(k) comes down to when you pay taxes.
Traditional Pre-Tax 401(k): “Pay the taxes later”
With a traditional pre-tax 401(k), you make your contributions before taxes. Your contributions do not count as income, reducing your taxable income for that year. However, distributions in the future will be taxed as ordinary income.
Roth 401(k): “Pay the taxes now”
With a Roth 401(k) you make your contributions after taxes. When you withdraw savings for retirement, you are not taxed.
Nike Employer Match
Nike will match 5% of your annual salary. To receive the match, you must contribute at least the same amount.
For example, if you’re making $250,000 and you put $22,500 into your 401(k), Nike will contribute $12,500 as a match.
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.
Nike Mega Backdoor Roth Example
In 2023, Nike allows you to contribute 3% of your annual salary to the Mega Backdoor Roth, up to $9,900.
To illustrate how these after-tax contributions can add up, we’ll walk through an example. In this example, our Nike employee is under 50, earns a base salary of $250,000, and maxes out their 401(k).
- 401(k) contribution: $22,500
- Nike match (5% of salary): $12,500
The pre-tax contribution and Nike match equal $35,000. Using the Mega Backdoor Roth, our example employee can contribute an additional $7,500 in after-tax dollars and immediately convert those dollars to Roth
How Much Should I Contribute?
The dollars you invest into your Mega Backdoor Roth are long-term dollars. If you have other large saving goals, such as saving for a down payment on a home or your children’s college tuition, you will need to allocate these short to mid-term dollars into different saving buckets (like a brokerage account).
Fortunately, the amount you want to contribute is totally up to you! You can look at your current situation and decide if you want to contribute $1,000, $5,000, 9,000, or up to the maximum allowed by Nike.
Long-Term Benefits of the Nike Mega Backdoor Roth
Needless to say, the long-term benefits of increasing your retirement savings, particularly by utilizing the Nike Mega Backdoor Roth Conversion strategy, could make a massive positive impact on what your retirement looks like.
Questions About Nike Benefits?
Schedule time with one of our advisors to discuss how to make the most of your Nike benefits.