{"id":296,"date":"2021-08-06T13:22:00","date_gmt":"2021-08-06T13:22:00","guid":{"rendered":"https:\/\/www.401keasy.com\/blog\/?p=296"},"modified":"2025-06-12T13:23:10","modified_gmt":"2025-06-12T13:23:10","slug":"whats-right-about-back-door-401k-contributions","status":"publish","type":"post","link":"https:\/\/www.401keasy.com\/blog\/whats-right-about-back-door-401k-contributions\/","title":{"rendered":"What\u2019s Right About Back Door 401(k) Contributions"},"content":{"rendered":"\n

Advantages of Backdoor 401(k) Contributions<\/h2>\n\n\n\n

To Find out What\u2019s Wrong About Backdoor Roth <\/strong>401(k) Contributions go to the Blog at https:\/\/nofees401k.com\/blog\/<\/a><\/strong><\/h3>\n\n\n\n

To Find Out What\u2019s Right About Back Door <\/strong>401(k) Contributions, Read the Following:<\/strong><\/h3>\n\n\n\n

1) People with higher incomes use a \u201cBack Door 401(k) (BDC), which is a combination of their Roth 401(k)and their Roth IRA Rollover. The \u201cBack Door 401(k) Contribution\u201d (BDC) is a tax avoidance strategy.<\/p>\n\n\n\n

2) To use a BDC, the employee\u2019s company 401(k) plan must allow for (a) in-service withdrawals, (b) Roth 401(k), and (c) after-tax contributions. 401(k) Easy Plus allows these three features.<\/p>\n\n\n\n

3) The BDC can increase a 401(k) participant\u2019s total annual contribution to $58,000 for employees under age 50 and increase the total contribution to $64,500 for employees over 50.<\/p>\n\n\n\n

4) Before a BDC can be deployed, the 401(k)participant must have contributed the maximum annual 401(k) contribution for the year. This can be a combination of regular traditional pre-tax contributions plus Roth post-tax contributions. For 2021 this maximum limit is $19,500 for persons under age 50 and $26,000 for persons over age 50.<\/p>\n\n\n\n

5) The company\u2019s 401(k) plan must pass the year-end compliance tests, including the ADP test, ACP test, and Top-Heavy tests, before BDCs can be made. Alternatively, if the company\u2019s plan is a Safe Harbor 401(k), these compliance tests can be set aside. A Safe Harbor 401(k) requires an employer match of at least 3% for all eligible employees and not just those who have chosen to participate in the company\u2019s 401(k).<\/p>\n\n\n\n

BDC Example:<\/strong><\/h2>\n\n\n\n

Employee A is under 50 years of age and is paid $60,000 in W-2 wages. This employee contributed a total of $19,500 in the 401(k). The 401(k) is a Safe Harbor 401(k), so the employer was obligated to contribute 3% (=$3,600) of the employee\u2019s salary. The pre-BDC for Employee A is now $23,100. The employee can make an additional BDC of up to $34,900, resulting in a grand total of $58,000.<\/p>\n\n\n\n

If Employee A leaves the BDC in the 401(k), gains on BDC money will be subject to capital gains taxes. Suppose the employee quickly withdraws the BDC using the 401(k)<\/a> plan\u2019s in-service withdrawal feature and transfers the BDC to a Roth IRA set up in advance. In that case, the employee may avoid these taxes until years in the future.<\/p>\n","protected":false},"excerpt":{"rendered":"

Advantages of Backdoor 401(k) Contributions To Find out What\u2019s Wrong About Backdoor Roth 401(k) Contributions go to the Blog at https:\/\/nofees401k.com\/blog\/ To Find Out What\u2019s Right About Back Door 401(k) Contributions, Read the Following: 1) People with higher incomes use a \u201cBack Door 401(k) (BDC), which is a combination of their Roth 401(k)and their Roth…<\/p>\n","protected":false},"author":1,"featured_media":297,"comment_status":"closed","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-296","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/296","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/comments?post=296"}],"version-history":[{"count":1,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/296\/revisions"}],"predecessor-version":[{"id":298,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/posts\/296\/revisions\/298"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/media\/297"}],"wp:attachment":[{"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/media?parent=296"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/categories?post=296"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.401keasy.com\/blog\/wp-json\/wp\/v2\/tags?post=296"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}