Intel Mega Backdoor Roth Conversion
Alex Castaneda | November 15, 2019
The Intel Mega Backdoor Roth Conversion is one of the most amazing benefits that will be available within the Intel 401k plan starting in January 2020. The Intel Mega Backdoor Roth Conversion is officially known as the Intel 401(k) After-Tax Roth Conversion Benefit.
Intel Mega Backdoor Roth Conversion
The Intel Backdoor Roth Conversion is officially known as the 401(k) After Tax Roth Conversion. In the future on our blog we’ll be covering the other benefits you may be eligible for as an Intel employee, which may include:
- Stock Grants
- Deferred Compensation (for those who are eligible)
- Intel 401k BrokerageLink
What we consider to be the golden egg of them all is the Intel Mega Backdoor Roth Conversion. You probably already know that if you’re under 50 years old, you can contribute $19,000 to your 401k. And if you’re 50 or older, you can contribute an extra $6,000 or $25,000 total. As an Intel employee, Intel is going to match the first 5% of your salary that you contribute to the 401k starting with a two-to-one match in 2020 and then a one-to-one match thereafter.
So say you make $150,000 and you max out your 401k at $19,000. Intel is going to put in another $7,500 which will be $26,500 total. What you might now know, though, is that the Federal limit in 2019 for total dollars going into a 401k is $56,000 if you’re under 50 or $62,000 if you’re 50 or over. This means that there’s a difference of $29,500 between what you and Intel potentially put in and that Federal limit.
Within the 401k at Intel, starting in 2020, Intel is going to allow you to fill that gap of $29,500 as an after-tax contribution. And then here’s the coolest part. You convert it into Roth dollars.
So let’s think about this. I, as a non Intel employee, can only contribute $6,000 into a Roth each year, above and beyond the typical 401k contribution. And then there are income restrictions. As an Intel employee, though, regardless of how much money you are making, you can contribute almost four and a half times as much as an employee at another company who doesn’t have this benefit.
Why is this important?
If you’re saving money outside of your 401k, it’s probably going to be in a brokerage account and when we think of brokerage accounts, we typically think of individual accounts, a joint account, or a community property account. Well within these types of accounts you’re going to have interest income, dividends, capital gains, all of which kick off some pretty substantial taxes on an annual basis. If we look at that year in and year out, with those taxes compounded on one another, you’re really losing out quite a bit there.
Whereas with a Roth, the same interest, capital gains, and dividends all grow tax free. So if you do this every single year, all of a sudden you’ve got a really nice nest egg built up of tax free dollars in your portfolio. Which then, down the road, just gives you a ton of flexibility to manage distributions in retirement. If you plan this correctly, you can save even more from a tax standpoint in retirement.
If you want to learn even more about how to leverage your Intel Mega Backdoor Roth Conversion, along with all of your other Intel benefits, feel free to set up a strategy session below.
This article is for illustrative purposes only. Individual situations may vary. Please consult your tax advisor to determine if the scenarios discussed in this article are right for you. Investment Advisory services offered through Avier Wealth Advisors. Avier is not affiliated with Intel.