David Carroll

March 30, 2021

Investing

How to save additional tax advantaged money in the Lockheed Martin 401(k) plan

A common question we receive from clients: “How can I save more money in a tax advantaged way?”  Fortunately, if you are an employee of Lockheed Martin you have a unique opportunity.

As us nerds call it, the “Mega Backdoor Roth IRA” is a strategy available in 401(k) plans that allow for after-tax 401(k) contributions (i.e. Lockheed Martin).  This strategy is appropriate for employees who are already maximizing contributions to the Pre-Tax or Roth buckets and are looking to save additional tax advantaged funds.  The maximum employee contribution to pre-tax or Roth is $19,500 plus a $6,500 “catch-up” contribution if you are over 50 ($26,000 total).  However, most employees are unaware that the total contribution limit to a 401(k) plan is $64,500.  This is where the after-tax piece comes into play.  If you are already contributing $26,000/year (assuming you are 50 years old or older) and your employer match/profit sharing is $15,000/year, you can still contribute $23,500 to the after-tax portion of your 401(k) plan!  Upon retirement, all after-tax contributions are eligible to be rolled into a Roth IRA!

Case Study:

John is a Program Manager at Lockheed Martin in Syracuse and earns $170,000/year.  He maximizes contributions to his 401(k) plan ($26,000) and receives the 4% match ($6,800) and the 6% profit sharing( $10,200).  Since these contributions total $43,000, John can still contribute $21,500 after-tax in is 401(k) plan.

This is a great strategy for Lockheed Martin employees and allows them to essentially fund a significant amount of money into a Roth IRA indirectly.  Give us a call or schedule a phone call if this is something you’d like to learn more about!

Ready to get started?

If you’re ready to start planning for a brighter financial future, Rockbridge is ready with the advice you need to achieve your goals.

Schedule a Call

Copyright © 2021 Rockbridge Investment Management - Syracuse, Binghamton, Watertown & Utica. All Rights Reserved. Privacy Policy