My employer offers a mega backdoor Roth IRA — how can we maximize our contributions?

Figuring out how to save for retirement can be confusing and frustrating. If you’ve had questions about which account to contribute to when to convert your accounts, and how to split your savings, but couldn’t find any satisfactory answers, you’re not alone.

One person, in particular, was wondering what the best way to split up their retirement contributions, so they took their concerns to the good people in r/fatFIRE on Reddit — a community focused on financial independence and retiring with “a fat stash”. Here is what they said.

The Question

Saving up for retirement.

The author of the original post says that their employer allows them to split their retirement contributions between a pre-tax IRA and a Roth IRA, (they also said there is an after-tax option, but a Roth account is after-tax, so it is unclear what they meant).

They wanted to know what the best way to split their contributions was, assuming they could maximize the legal contribution limit each year. They assumed it was best to maximize the pre-tax contributions and then contribute whatever is left over into the Roth account. They asked the community to verify their intuition.

The Community Response

Making a plan for retirement.

There were only a handful of comments, and most generally agreed with the author that it is best to maximize your pre-tax contributions. The reason is because when you retire, most people expect to be in a lower tax bracket, so the taxes paid on any withdrawals will be less than taxes paid today.

However, a few pointed out that where and how much you should contribute depends on your employer plan and their contribution match. If your company provides a match for one type of account and not another, then you should definitely maximize the match in that account, otherwise you are just leaving free money behind.

If you have any questions, speak to your HR representative or look through your company’s 401(k) documentation to see how your company matches your retirement contributions (if at all). If there is no match, then contributing the amount you can afford into a pre-tax retirement account is usually the recommended approach, especially for beginners.

As always, please remember that all the comments in the original thread and the information in this article are opinions. You should always speak with an expert before making any financial decisions.