Unlocking the Mega Backdoor Roth: Maximizing Retirement Saving

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Unlocking the Mega Backdoor Roth:

Maximizing Retirement Savings

What is a Roth IRA? What is a Roth 401k? Do I make too much money to qualify? What about backdoor vs. mega backdoor? If you’ve asked yourself any of these questions, keep reading!

First, some background: A regular IRA and a regular 401k both give savers the opportunity to put aside a portion of their income to save towards retirement and enjoy a tax break on the contribution and a deferral on the taxes from the growth in the account. Upon retirement, you pay income taxes as your withdraw the money. Roth IRAs and Roth 401k accounts do not give you the upfront tax deduction, but your growth and withdrawals in retirement are tax-free.

High earners aren’t able to directly contribute to Roth IRAs (there are no income limits for Roth 401k contributions) and so there’s a way to convert a regular IRA to a Roth, which is known as a “backdoor” Roth IRA. However, there’s still a limit for how much you can contribute to a Roth IRA in a given year – for 2024 that’s $7000 (or $8000 if you’re over 50).

The Mega Backdoor Roth

Now that we have the background of the “Backdoor” Roth, what exactly is the “Mega Backdoor Roth”? The Mega Backdoor Roth is a way to contribute to your 401k with after-tax dollars, and then either withdraw it to convert to a Roth IRA, or convert within the plan if there is a Roth 401k available.

How Much Can I Convert with the Mega Backdoor Roth?

In 2024, the IRS allows you and your employer to put up to a total of $69,000 into your 401k ($76,500 if you’re over 50). Your regular employee contributions max out at $23,000 ($30,500 if you’re over 50), which leaves you with an extra $46,000 of after-tax contributions. If you receive a company match, you must deduct that from the $46,000. For example, if you max out your 401k by contributing $23,000 and your employer contributes $11,500, then you would be able to contribute another $34,500 using the Mega Backdoor Roth strategy.

Is My 401k Compatible with the Mega Backdoor Roth?

Your 401k plan must offer two key features for you to take advantage of the Mega Backdoor Roth strategy.

1. After-tax contributions. This is separate from your regular 401k contribution, and are kept in a separate bucket.

2. In-service withdrawals. Your 401k plan must allow you to either withdraw the money while you are still employed so that you can move it to a Roth IRA, or your plan must allow you to move the money to the Roth 401k part of the plan.

If you’re not sure whether your plan has these two elements, reach out to your HR department or your financial advisor.

Is the Mega Backdoor Roth Right for Me?

Generally, if you are pursuing the Mega Backdoor Roth, you should have lots of excess savings. You should already have maxed out your regular 401k, maxed out your HAS (if you have one), have a comfortable emergency fund and have plenty of savings for your needs prior to retirement. If you have all of that and more, then this strategy may be for you.

Before you implement this strategy, be sure to reach out to your financial advisor or CPA and discuss your individual circumstances. This can be a great way to build a pot of tax-free savings to help fund your retirement.

Bill Promes

Bill Promes

Financial Planner Austin Creek Capital

I work with a number of divorced or single women in the tech industry, and I’ve found that they are always eager to learn about financial planning and investing. One of my strengths in my previous career was the ability to facilitate conversations between the technical and business teams. In my work with women, I feel like I can help explain financial planning and investment concepts in a jargon-free way, and they are more open to learning than some of my male clients that are more apt to think that they know everything already. I really enjoy helping women maximize their equity compensation and employee benefits and ensure that they are setup comfortably for today all the way to retirement.

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Becoming Free From The Fear Of Failure

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Becoming Free From The Fear Of Failure

An Interview With Savio P. Clemente
Self love hug as esteem and confidence for being woman tiny pers

Do First. Think Later. Learn By Doing. When I was a kid; I wanted to learn how to ride a bike. But I am stubborn and didn’t want anyone to help me. Regardless, my brother instructed me to just straddle the bike at the top of a hill, lift my feet up, and then coast down the hill…all I had to do was balance. Little did I know if I started at the top of a hill, I would be going very fast by the time I got to the bottom. And I didn’t know how to brake.

The Fear of Failure is one of the most common restraints that holds people back from pursuing great ideas. Imagine if we could become totally free from the fear of failure. Imagine what we could then manifest and create. In this interview series, we are talking to leaders who can share stories and insights from their experience about “Becoming Free From the Fear of Failure.” As a part of this series, I had the distinct pleasure of interviewing Karen Koenig.

Karen Koenig is a speaker on the topics of money types and money mindset. She is the author of “Woman on Top: How to Win in a Woman’s Way”. She is the founder of KK Financial Solutions and is a seasoned Financial Advisor/Planner who helps individuals, business owners and divorcees understand how to create a financial future that is right for them and their businesses.

Thank you so much for joining us! Our readers would love to “get to know you” a bit better. Can you tell us a bit about your ‘backstory’?

I was originally born and raised in the Midwest, but in 2012 I moved to the Pacific Northwest and currently live on a little island North and West of Seattle, called Whidbey Island. Through my careers, I have accumulated over 30 years’ experience in male-dominated fields. I spent 26 years in the military, 6 years in aerospace and then changed careers entirely and went into financial services in 2015. I love being an entrepreneur, where I can work with individuals, small businesses, and divorced people to help them plan and grow their financial future.

Can you share with us the most interesting story from your career? Can you tell us what lessons or ‘take aways’ you learned from that?

When I was in Officer Candidate School (OCS) I was the guidon for our flight. Meaning I took care of our flight’s flag and carried it during our marching sessions. On one occasion our flight got in trouble, and we had to do push-ups as punishment. I had no idea at the time what to do with the guidon (flag), or how I was supposed to do push-ups while holding it, and I was downright scared to do the wrong thing. So, without thinking, I proceeded to do a one-handed push up, while still holding the guidon in the upright position. My Drill Instructor was impressed to say the least but scolded me later and stated I needed to find a better way. Later I found out I was supposed to wait for the flight to do their pushups, then hand the guidon to the person behind me, then do a two-armed pushup just like everyone else.

What I learned from this experience was to prepare for certain situations that might happen while in the process of doing a particular task, then store the knowledge in my databank for later use. Knowing at some point I would l have to do push-ups while carrying the guidon, I should have watched what another guidon did with their flag when their flight had to do push-ups. Had I prepared ahead of time and observed how to do this task correctly, I could have taken the fear out of the situation and applied the correct procedure from the start.

You are a successful leader. Which three-character traits do you think were most instrumental to your success? Can you please share a story or example for each?

I believe the three character traits that were most instrumental to my success, were the core values I learned in the military. Integrity first, service before self and excellence in all we do. Integrity is the willingness to do what is right even when no one is watching. It’s the moral compass or the inner voice. Service before self is the new assignment or new job which we take that isn’t in the ideal location, or the need to retrain to do something else even if you are happy with where you are at. Excellence in all we do is a mindset of giving your best, striving to continually improve yourself, and expecting the same from others.

Ok, thank you for all that. Now let’s shift to the main focus of this interview. We would like to explore and flesh out the concept of becoming free from failure. Let’s zoom in a bit. From your experience, why exactly are people so afraid of failure? Why is failure so frightening to us?

I believe people are afraid of failure because of a couple of reasons. They either don’t know exactly what to do at every step of the journey or they hit a roadblock and quit. People get so caught up in trying to figure out how or the right way to do something, they get into ‘analysis paralysis’, and never start. Or, when they hit a roadblock, instead of moving past the issue, they just stop because it’s the easiest thing to do. Failure is so frightening to us because there might be the perceived negative judgement of us by others, or a sense of shame or disappointment. In essence, we don’t want to let ourselves or others down.

What are the downsides of being afraid of failure? How can it limit people?

Failure causes stress and stress causes the release of cortisol, which can lead to many issues to include limiting people from succeeding at goals, on how to be productive, or it may even impair your relationships. Therefore, the downside of being afraid of failure is never accomplishing what you set out to do in the first place. The fear grips you to the point you do not act on things which could change your business and/or life.

In contrast, can you help articulate a few ways how becoming free from the fear of failure can help improve our lives?

Becoming free from failure can improve your life in many ways. Success releases dopamine, which helps regulate unconditioned fear in the brain. In essence dopamine can help you accomplish a goal. When you feel good this then helps in productivity. The more you succeed, the more you want to accomplish. And, last, when you feel good, and are productive, naturally your relationships become better.

We would love to hear your story about your experience dealing with failure. Would you be able to share a story about that with us?

Of course. I experienced true failure in recent years when I was studying to become a financial advisor. The Series 7 test was very long and was an ardent task to study for. The test itself was 135 questions and they allot 3 hours and 45 minutes to complete the test. After studying for months, working with an advisor, and taking many practice quizzes, I sat for the test and failed it the first time by 5 points. Once you fail, you must wait 30 days to retake the Series 7 again. After 30 days, I sat for the test again and failed the second time by 1 point. Then, after another 30- day wait, I was allowed to sit for the test again and I passed!

How did you rebound and recover after that? What did you learn from this whole episode? What advice would you give to others based on that story?

I recovered slowly. I was embarrassed the first time I failed, but I knew I could take the test again, so I did. But after failing the test a second time, I was not only embarrassed, but I felt I was a complete failure and I wanted to quit. Quit my goal of becoming a financial advisor.

My advice to others is reach out for help! I finally reached out to another advisor and told them I wanted to quit, but they encouraged me to try another time. I am glad I listened. What did I learn? If I had quit after the second time I failed, I wouldn’t be the successful financial advisor I am today. Never quit because it could be the day before you become successful!

Fantastic. Here is the main question of our interview. In your opinion, what are 5 steps that everyone can take to become free from the fear of failure”? Please share a story or an example for each.

I have 5 steps that are principles in my book:

  1. Do First. Think Later. Learn by Doing.
  2. Perfection is not Progress
  3. Find the Truth and ask for help
  4. A Target only you can hit
  5. There is Power in Failure

Do First. Think Later. Learn By Doing. When I was a kid; I wanted to learn how to ride a bike. But I am stubborn and didn’t want anyone to help me. Regardless, my brother instructed me to just straddle the bike at the top of a hill, lift my feet up, and then coast down the hill…all I had to do was balance. Little did I know if I started at the top of a hill, I would be going very fast by the time I got to the bottom. And I didn’t know how to brake. By the way, I was riding a bike which had a braking system controlled by reversing the pedals…of which my feet were NOT on because I had lifted them to let the pedals spin. Half-way down the hill, I was screaming at my brother, “How do I stop?!” And low and behold, I hit a lifted piece of sidewalk and wiped out. I ended up cracking my head on the cement and getting a big goose egg, but you know what? I learned how to ride a bike! I did it first, thought about consequences later, and then I learned how to do it better.

Perfection is not Progress. Perfection is defined as everything must be 100% accurate or in place. Perfection paralysis is when everything must be 100% to move forward, where progress is going from 50 to 60%. If you are improving that is progress. The primary focus is starting somewhere and improving on where you are. Because when people think they need to be perfect, they often don’t get started at all.

Find the truth and ask for help. When I was married, I wasn’t happy towards the end. We had gone to counseling three times over a period of three years. Things would get better for about six months; then we would go back to the same behaviors that had gotten our relationship in trouble. I was avoiding the reality that divorce was the solution, but we had two small children. Long story short, I reached out to my pastor and asked what I should do. I asked for help, and he guided me to the solution that I should not stay in an unhappy marriage just for the kids. He made me realize I was teaching my children it was okay to always be unhappy. I found the truth in my situation, and I asked for help.

A Target only you can hit. My parents taught me at a young age to set goals. They were the ‘set it and you will achieve it’ type people. My father was an EMT in the Air Force and then went to school, after I was born, to be an engineer. My mother went to college to be a nurse, through the ROTC program, and then served four years in the Air Force to pay back her college tuition. My goals were to be the first sibling in my family to go to college, to join the Air Force and eventually get commissioned as an officer. I defined my goals by looking at what I wanted to do in life, then I looked at my family and how those goals might affect them, and then I set out to achieve them. I wrote the goal down, I mapped out the preliminary steps and then I envisioned the goal daily, keeping only the end in mind without getting caught up in the “how’s.” I now do a 5-year vision board to help my process of goal setting.

There is Power in Failure. In the process of writing my book, “Woman on Top: How to Win in a Woman’s Way” I met a huge stumbling block along the way. The publisher and I talked through the steps, and I followed his successful process for publication. I was going along great, figuring out my content; coming up with examples and fleshing out what I wanted to say, and just when I was close to finishing, I got stopped by compliance. I had received permission to write my book but was never told I had to produce the manuscript before I started to promote it. I paid for a URL and had a website set up but was never told the website had to be approved. Therefore, I had to shut it down right when I was getting started. I let this one event define how and when I was to move forward. The publisher I was using had a proven process, and I was not able to follow it, so I thought I had to quit everything, including writing the book! Even though I had a failure in the process, I was able to meet with my publisher and get back on track using a modified process to fit my needs, and still get my book done.

The famous Greek philosopher Aristotle once said, “It is possible to fail in many ways…while to succeed is possible only in one way.” Based on your experience, have you found this quote to be true? What do you think Aristotle really meant?

I certainly have found that quote to be true. I think Aristotle meant it takes multiple failures to meet our personal definition of success. In my case, as you have seen, I have failed several times at my goals, but like in all the examples, I succeeded in then end, in one way or another.

You are a person of great influence. If you could inspire a movement that would bring the most amount of good to the greatest amount of people, what would that be? You never know what your idea can trigger. 🙂

I would inspire a movement to change what is currently being taught in the school systems. I believe it would be more beneficial to teach young people practical skills on how to be successful in life. For example, how to open a bank account, how to file their taxes, how to buy a house, how to apply for a job, when/how to invest, etc.

We are blessed that some very prominent leaders read this column. Is there a person in the world, or in the US, with whom you would love to have a private breakfast or lunch, and why? He or she might just see this, especially if we tag them 🙂

I would love to sit and chat with Jamie Kern Lima, author of “Believe It” and founder of IT cosmetics. I admire her tenacity, her grit, and her authenticity. She was met with many failures in her rise to the top, yet look at where she is at now…what a blessing and a gift to see her success in a highly competitive industry.

 

About The Interviewer: Savio P. Clemente coaches cancer survivors to overcome the confusion and gain the clarity needed to get busy living in mind, body, and spirit. He inspires health and wellness seekers to find meaning in the “why” and to cultivate resilience in their mindset. Savio is a Board Certified wellness coach (NBC-HWC, ACC), stage 3 cancer survivor, podcaster, writer, and founder of The Human Resolve LLC.

Karen Koenig

Karen Koenig

Founder and Ower

As CEO and Founder of KK Financial Solutions, I use the principles from the book to help business owners, entrepreneurs, and divorcees like me, with their money mindset. I also help them to understand and implement a financial strategy that is right for their family and business, and to grow their money using other principles beyond the traditional venues of 401k, IRA and ROTH.

We will provide you useful and timely information you can use to be #financiallyfearless

Planning for Un-Retirement

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Blog Series

Planning for “Un-Retirement”

HSA Heath Savings Account

Yvonne came to me with one question: “Can I afford to leave this all-consuming stressful job, and instead work at the non-profit I’m passionate about? It won’t pay nearly as much, but I’ll be so much happier!” I’m going to walk you through the process we followed to help her answer that question.

If you’re considering a departure from “corporate,” leaving the comfort of a regular paycheck and benefits, you know it’s a multi-faceted decision. Money is not the only consideration. Nor should it be the most important one!  I encourage all women to think deeply about

  • what brings you joy and gives you energy,
  • how your relationships are affected by your work,
  • your physical and mental health,
  • and how you can move forward feeling engaged and making a difference.

And we must acknowledge the reality of the world we live in. Unless you live off the land, grow your own food, and can fix your own plumbing, you need to think about money!

 

Here’s my suggested framework to look at your own numbers and decide if you have enough to head out the door.

Step One: What does your current life cost?

There’s no way to get around the need to assess your spending. Lots of women feel really uncomfortable with this part. There’s some unspoken internal (or presumed external) judgment going on – of how many dollars you have and/or where they’re going. Remember – the numbers on the page aren’t judging you! Numbers are just numbers. Whatever shame and guilt you might be feeling is coming 100% from your own head. Please be gentle with yourself! Try to set that judgment aside and instead adopt an approach of scientific curiosity. What can you learn from looking at these interesting numbers?

You need to figure out your Burn Rate. That’s the amount of money you’re spending each month (don’t forget the things that occur less than monthly, like vacations, holidays and gifts, insurance and taxes). Also consider if you’ll need to add in health insurance costs, if that’s something you now get a work but will not in the future!

 

Step Two: What if you pare it down to the bare minimum?

What’s your “ramen noodle budget?” (BTW I totally stole that term from a client – thanks K.A.!)  This is not about how you want to live, it’s just an exercise to understand if you had to cut down to survival mode, what would that number be? If things go sour, what could you squeak by on?

 

Step Three: What financial resources do you have?

Add up your assets. This is an important exercise no matter what’s going on in your life! Look at how many dollars you have AND what types of dollars they are. The type of account they’re sitting in affects their liquidity, accessibility, taxation and risk. What are your income sources? Do you have any that would continue if you leave your job? These could be things like rental income, side businesses, annuities – or for the future, pension plans and Social Security.

 

Step Four: What might your new chapter cost?

Is this change going to require some monetary investment to get started? Training or certification, supplies or equipment, software or subscriptions? Do you need to build a website, rent an office, hire some help? If you’re considering a completely new field and don’t know the answers, find people to ask! Tap your network, and your networks’ network. Remember those Informational Interviews we did back in college days? It’s amazing how many kind-spirited people are willing to help. They can point you toward helpful resources, or suggest mistakes to avoid.

If you will have start-up costs, where is this money going to come from? Do you have savings you can tap? (Ideally not inside your retirement accounts, as they should be earmarked for your living expenses down the road (and remember the 10% penalty that applies to most withdrawals before age 59 1/2). Would you take out a loan? If so, be sure to factor in the loan payments to your future expenses.

 

Step Five: Calculate your Runway

Math time!  (You can do this – everyone’s phone has a calculator these days. :))

  • Start with how much of your assets you are willing to spend to get going.
  • Subtract any start-up costs (step 4)
  • Divide the result by your monthly Burn Rate (step 1)

The result is the number of months you could float yourself if no revenue comes in from the new initiative.

 

How does that number feel to you?

If you don’t like the result, are you willing to make some cuts to your ongoing spending? Maybe to move somewhere closer to your ramen noodle budget? How important is this reinvention to you? Are you willing to make some sacrifices? Try to be realistic!

If your answer is zero months, or a very small runway of time, maybe you can set a goal of building up to a comfortable number before you jump. Maybe you start working on the new idea part-time while you’re still earning an income. Or you think about working at Starbucks for the health insurance while you’re ramping up.

 

Step Six: How much do you think you’ll make?

And how long will it take? Remember it’s always safest to use a conservative number in your projections. We like positive surprises much better than the opposite!

I want to acknowledge that leaving corporate doesn’t always happen on our schedule! Forced reinvention has been a reality, especially for women of a certain age, for a very long time. And COVID has only made it more indisputable. We can’t always lay down these nice, neat plans before we’re off the cliff. So it behooves all of us to have a reinvention plan in our back pockets!

 
Also consider: What could go wrong?

Some say jumping without a net brings a higher likelihood of success. As a financial planner, I like to err on the other side. Think about the potential pitfalls now, since we humans make better decisions when we’re not in a state of high and stress. What will you do if getting off the ground takes longer than expected; if you reach the end of your runway and income is not covering your living expenses?

  • Would you turn to other ways to bring in some revenue? Think now about what those might be.
  • Would you be willing to sell some of your investments? Decide today in which order and how it would work.
  • Would you ask a friend or family member for a loan? Have some conversations and plant the seed sooner rather than later.
  • Would you tap the equity in your home? Understand the pros and cons of that move and talk to a lender now.

Maybe you have a line you would not cross. You could give yourself a set amount of time, and if it’s not working you move to Plan B. You decide ahead of time on a certain number of dollars of your assets you’ll use, then you’d move to Plan C.

 

Yvonne’s Happy Ending

Yvonne and I talked through these steps and crunched her numbers. She did quite a bit of self-reflection and talked to trusted people in her life. She decided to save as much as she could for 6 more months, then make the leap. This also gave her time to have an orderly transition in the job she was leaving, to not burn bridges and to keep her network strong. Today she feels lighter and more fulfilled than when we started working together!

Like Yvonne, if you follow this framework, do some math and think through your options ahead, I know you’ll feel more confident moving forward.

Stephanie McCullough

Stephanie McCullough

Founder & Financial Planner

Our focus is working with women 45+ who are facing a financial future on their own and are looking for a true partner in money decision-making. I help professional women reduce financial stress by aligning their money story with their deepest-held values. I am a non-judgmental financial advisor. My team and I work hard to create a safe space to have the intimate conversations necessary. Since money touches all the most important parts of our lives, we have to talk about it all before we can decide what you should do with your dollars.

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