The Boeing Mega Backdoor Roth: Retire with More
As a Boeing employee, you have a powerful tool to build more wealth for retirement: the Boeing Mega Backdoor Roth. This program lets you save beyond the normal limits of your Boeing 401(k) plan. Here’s how it works!
Key Takeaways
The Boeing Mega Backdoor Roth lets Boeing employees invest after-tax dollars into a Roth IRA.
Using this program, employees can invest beyond the limits of a traditional 401(k) account.
Because contributions are after-tax, the funds will grow tax-free and will not be taxed upon withdrawal.
What Is the Boeing Mega Backdoor Roth?
The IRS sets limits on how much an employee can invest in a 401(k) plan in a given year. In 2024, the limits are:
$23,000 for employees under 50
$30,500 for employees 50 or older (through catch-up contributions)
(Note: these are only limits for how much you as an employee can invest from your own salary. Because Boeing matches all contributions up to 10% of your salary, the actual amount in your 401(k) would be higher.)
Once you reach your limit, you can no longer contribute to your Boeing 401(k). However, Boeing provides additional options to help you maximize your retirement savings. One option is the Boeing Mega Backdoor Roth.
How the Boeing Mega Backdoor Roth Works
While most 401(k) contributions are pre-tax, the Mega Backdoor Roth lets you invest after-tax dollars into your 401(k) account. These contributions can then be converted to a Roth IRA, where they will grow tax-free. And since the funds were taxed before being invested, they will not be taxed when withdrawn.
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How Much Can I Invest in My Mega Backdoor Roth?
Using the Mega Backdoor Roth, you can invest $46,000 in after-tax funds on top of your pre-tax 401(k) contribution limits. This means that the combined total limit for both pre-tax 401(k) contributions and Mega Backdoor Roth contributions is:
$69,000 for employees under 50 ($23,000 + $46,000 = $69,000)
$76,500 for employees 50 or older ($30,500 + 46,000 = $76,500)
If Boeing matches your pre-tax 401(k) contributions and exceeds your pre-tax 401(k) limit, that amount is subtracted from the $46,000 figure. So no matter what, $69,000 or $76,500 is always the highest you can go.
Benefits of the Mega Backdoor Roth for Boeing Employees
1. Higher Contribution Limits
While traditional and Roth 401(k) contributions are capped at a lower figure, the Mega Backdoor Roth allows employees to make additional after-tax contributions. This increase in potential savings means you can save more for retirement.
2. Tax-Free Growth and Withdrawals
One of the main benefits of a Mega Backdoor Roth is that the money will grow without being taxed, and will be tax-free when withdrawn. This is especially useful if you are taxed in a higher tax bracket after retiring.
3. Flexibility
Boeing’s Mega Backdoor Roth plan gives you flexibility in how you convert your after-tax contributions to Roth. Depending on the plan, conversions can be handled either within the 401(k) through in-plan rollovers or moved to an external Roth IRA. You can even plan conversions for years when your tax rate may be lower, maximizing tax savings.
4. Estate Planning
Unlike many retirement funds, Roth IRAs do not have required minimum distributions (RMDs). This makes a Roth account an excellent tool for estate planning, helping you leave a tax-free inheritance for your heirs.
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Using Your Mega Backdoor Roth
Here’s how to make the most of your Mega Backdoor Roth as a Boeing employee.
Contribute after-tax dollars: Contribute after-tax dollars up to the federal limit, taking into account your pre-tax or Roth contributions and employer matches.
Convert to Roth: Next, these after-tax contributions can be converted into a Roth IRA either within the plan (in-plan Roth rollover) or by transferring to an external Roth IRA.
Enjoy tax-free growth: The funds invested in your Roth IRA will grow tax-free until you are ready to start making withdrawals.
Mega Backdoor Roth Examples
To better understand how this program can help you, let’s look at some examples with hypothetical Boeing employees.
Example #1: Young Professional
Name: Emily
Age: 28
Salary: $85,000
Standard 401(k) Contribution: $10,000 (pre-tax)
Boeing Employer Match: $8,500 (10% of salary)
Emily wants to accelerate her retirement savings beyond her current contributions. After covering her standard 401(k) contributions and receiving the employer match, she decides to use the Mega Backdoor Roth. She contributes an additional $20,000 as after-tax contributions to her 401(k), which she then converts to her Roth IRA, ensuring her money grows tax-free.
This strategy allows Emily to save more than the standard 401(k) limits and take advantage of tax-free growth early in her career, setting a robust foundation for her retirement savings.
Example #2: Mid-Career Employee
Name: David
Age: 45
Salary: $120,000
Standard 401(k) Contribution: $23,000 (maxing out his Roth 401(k) limit)
Boeing Employer Match: $12,000 (10% of salary)
David is actively preparing for retirement and looking to maximize his contributions. His Roth 401(k) and employer match total $35,000. To further boost his retirement funds, David contributes an additional $34,000 in after-tax dollars to his 401(k), which he converts to his Roth IRA, taking full advantage of the $69,000 total limit for his age group.
David's strategy boosts his retirement savings significantly, taking advantage of tax-free withdrawals in retirement and putting him in a better tax situation during his retirement years.
Example #3: Nearing Retirement
Name: Linda
Age: 55
Salary: $140,000
Standard 401(k) Contribution: $30,500 (including the $7,500 catch-up contribution available for employees over 50)
Employer Match: $14,000 (10% of salary)
As Linda approaches retirement, she's focused on maximizing her savings. After her contributions and employer match, she has a total of $44,500 invested in her Boeing 401(k). However, she still hasn’t reached the full $76,500 available through the Mega Backdoor Roth program. Linda invests another $32,000 in after-tax contributions, maxing out her combined total.
This strategy will provide Linda with a substantial tax-free income source in retirement. This is crucial for managing her tax bracket when she starts withdrawing her retirement funds.
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Mega Backdoor Roth vs. Boeing SSP
Another common option for Boeing employees who want to exceed their 401(k) limit is the Boeing Supplemental Savings Plan (SSP). This is a fund that high-earning employees can use to invest additional pre-tax funds after maxing out their Boenig 401(k).
The main differences between the two are:
The SSP is specifically designed for executives and highly compensated employees, while the Mega Backdoor Roth is accessible to a broader range of Boeing employees.
Contributions to the SSP are made with pre-tax dollars, reducing taxable income in the contribution year. In contrast, Mega Backdoor Roth contributions are made with after-tax dollars.
Withdrawals from the SSP are taxed as ordinary income, while withdrawals from a Mega Backdoor Roth (after conversion to Roth) can be tax-free, including the earnings, provided certain conditions are met.
The SSP allows for the deferral of compensation beyond the standard 401(k) contribution limits to a non-qualified plan, whereas the Mega Backdoor Roth is still within the framework of the 401(k) but utilizes after-tax contributions to grow earnings tax-free.
Generally, funds in the SSP are available upon retirement or separation from the company, under the plan's specific distribution rules, while Mega Backdoor Roth funds are more flexible and can be rolled over into a Roth IRA for continued tax-free growth.
Both plans have their pros and cons. Consult a qualified financial advisor to learn which option is best for you!
Need Help with Your Boeing Mega Backdoor Roth? Let’s Talk!
By making use of your Boeing Mega Backdoor Roth, you can give yourself a better nest egg for your golden years. However, retirement planning is nothing if not complicated. We’d be happy to take care of the hassles for you!
At TrueWealth Financial Partners, we give Boeing employees the financial advice they need to increase their savings and retire in peace. Schedule a call today, and we’ll be happy to answer any questions you have.
We’re looking forward to hearing from you!