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Nike Mega Backdoor Roth 401(k)

By Cecil Staton, CFP®

Maximizing Retirement Savings with the Nike Mega Backdoor Roth 401(k)

For Nike employees, the Nike Mega Backdoor Roth 401(k) presents an incredible opportunity to supercharge retirement savings. By leveraging this unique provision, employees can contribute after-tax dollars to their 401(k) and convert them to a Roth account, unlocking significant tax-free growth potential. This article dives deep into how the Nike Mega Backdoor Roth works, how it fits into your financial goals, and the tax implications of using this strategy.


What Is the Nike Mega Backdoor Roth?

The Nike Mega Backdoor Roth 401(k) is a feature of Nike’s retirement plan that allows employees to make after-tax contributions beyond the standard pre-tax and Roth contribution limits. These contributions can then be converted to a Roth account, where both the contributions and investment earnings grow tax-free. This strategy is especially beneficial for high earners and those looking to maximize their retirement savings.


Contribution Limits and Key Details for 2025

In 2025, the IRS 401(k) contribution limits are:

  • Under 50: $23,500
  • 50 and older: $31,000 (includes a $7,500 catch-up contribution)

Nike employees can contribute up to 3% of their annual salary as after-tax dollars under the Mega Backdoor Roth provision. For example:

  • An employee earning a base salary of $250,000 can contribute an additional $7,500 in after-tax dollars, on top of the regular 401(k) contribution limits and the employer match.
  • Nike’s employer contributions (5% of your annual salary) further enhance the total contribution.

Tax Treatment and the Mega Backdoor Roth

Understanding the tax implications of the Nike Mega Backdoor Roth is critical:

  1. After-Tax Contributions: These contributions do not reduce your taxable income in the year they are made. For high earners, this means no immediate tax savings.
  2. In-Plan Roth Conversion: Once you convert these after-tax dollars to a Roth account, any subsequent growth becomes tax-free. However, any investment gains accrued before conversion are subject to taxes.
  3. Roth Benefits: Contributions, along with their investment earnings, are completely tax-free upon withdrawal in retirement (subject to qualified distribution rules).

The favorable tax treatment of the Roth account makes it a compelling option for those expecting higher tax rates in retirement or those seeking tax diversification.


Why the Mega Backdoor Roth Matters for Nike Employees

Nike employees often receive a mix of salary, stock options, and equity compensation. The Mega Backdoor Roth can help you:

  • Maximize Retirement Savings: By utilizing this provision, you can significantly exceed the standard 401(k) contribution limits.
  • Reduce Future Tax Burden: Roth accounts provide tax-free income in retirement, which can be critical for managing taxable income from other sources like employee stock purchase plans or traditional IRAs.
  • Align with Financial Goals: Whether saving for long-term financial security or managing catch-up contributions, this strategy can align with your broader retirement plan.

Making the Decision: Traditional 401(k) vs. Mega Backdoor Roth

When deciding how to allocate your contributions, consider:

  1. Current Tax Bracket: If you’re in a high tax bracket, pre-tax contributions to a traditional 401(k) can reduce your taxable income. However, the Mega Backdoor Roth is ideal for after-tax savings.
  2. Retirement Goals: Roth dollars provide tax-free income, which is particularly advantageous if you anticipate higher expenses or a higher tax rate in retirement.
  3. Flexibility: The Mega Backdoor Roth allows you to customize your savings, contributing anywhere from $1,000 to the annual limit.
  4. Investment Strategy: Roth accounts provide a platform for mutual funds, target-date funds, and other investment vehicles to grow tax-free.

Step-by-Step: How to Implement the Nike Mega Backdoor Roth

  1. Max Out Traditional 401(k) Contributions: Ensure you’ve contributed the annual maximum ($23,500 in 2025 or $31,000 for those 50 and older).
  2. Contribute After-Tax Dollars: Determine how much additional savings you can allocate. Nike allows up to 3% of your salary as after-tax contributions.
  3. Initiate an In-Plan Roth Conversion: Request the conversion through the Nike 401(k) administration. It’s essential to execute this promptly to avoid taxation on investment gains.
  4. Monitor Investment Earnings: Ensure your contributions and conversions align with your broader investment strategy and fund allocation.
  5. Work with a Certified Financial Planner: A financial advisor can help optimize contributions and conversions, minimizing your tax burden and maximizing growth potential.

Combining the Mega Backdoor Roth with Other Nike Benefits

Nike offers a robust suite of employee benefits, including the Employee Stock Purchase Plan (ESPP), which can be combined with the Mega Backdoor Roth to maximize financial benefits. Here’s how:

  1. Leverage ESPP for Immediate Gains: By purchasing Nike stock at a discount through the ESPP, you can build additional wealth outside your 401(k). These funds can be reinvested or used to meet short-term goals, freeing up more income for after-tax contributions to the Mega Backdoor Roth.
  2. Optimize Stock Option Timing: Coordinate the timing of your stock option exercises and sales with Mega Backdoor Roth contributions to manage taxable income effectively.
  3. Maximize Employer Match and Contributions: Ensure you contribute at least 5% of your salary to capture Nike’s full employer match, then use the after-tax contribution feature to maximize your retirement savings potential.

Combining these benefits allows you to balance tax efficiency with investment growth, creating a comprehensive strategy for long-term wealth.


Mega Backdoor Roth vs. Regular Roth IRA Contributions

While both the Mega Backdoor Roth and regular Roth IRA contributions are designed to provide tax-free growth, they differ significantly:

  1. Contribution Limits:

    • Regular Roth IRA contributions are capped at $7,000 for 2024 (8,000 if over 50), subject to income limits.
    • The Mega Backdoor Roth allows contributions beyond these limits, up to the maximum combined 401(k) limit, including after-tax contributions.
  2. Income Limits:

    • Regular Roth IRA contributions are phased out for high earners with modified adjusted gross incomes exceeding $153,000 (single) or $228,000 (married filing jointly).
    • The Mega Backdoor Roth has no income limits, making it a valuable option for high earners.
    • Since you’re covered by Nike’s plan, it’s likely you’re also phased out of taking a tax deduction when contributing to a traditional IRA.
  3. Tax Treatment:

    • Regular Roth IRA contributions are made with after-tax dollars and grow tax-free.
    • Mega Backdoor Roth contributions also use after-tax dollars but require a conversion step to achieve the same tax-free growth benefits.
  4. Integration with Employer Plans:

    • Roth 401(k) contributions and the Mega Backdoor Roth are part of an employer-sponsored plan, which may include additional perks like employer matches and broader investment options compared to a standalone Roth IRA.

By understanding these distinctions, you can determine which strategy aligns best with your financial goals and retirement planning needs.


Scenario: High Earners Using the Mega Backdoor Roth Strategy

Case Study: Sarah, a Nike employee, earns $300,000 annually and wants to maximize her retirement savings:

  1. Sarah contributes $23,500 to her traditional 401(k), reducing her taxable income.
  2. Nike matches 5% of her salary, contributing $15,000.
  3. She contributes an additional $9,000 in after-tax dollars.
  4. Sarah immediately converts these after-tax contributions to a Roth account, ensuring tax-free growth.
  5. By retirement, Sarah’s Roth account has grown significantly, providing her with a tax-free income stream.

Potential Pitfalls and How to Avoid Them

  1. Delayed Conversions: Investment gains before conversion are taxable, so act quickly to minimize this risk.
  2. Over-Contribution: Monitor your total contribution limits to avoid penalties.
  3. Misaligned Goals: Ensure this strategy aligns with your short- and long-term financial objectives.

Aligning the Mega Backdoor Roth with Financial Goals

The Mega Backdoor Roth is not a one-size-fits-all strategy. It’s essential to:

  • Evaluate your annual salary, expenses, and financial priorities.
  • Balance retirement savings with near-term goals, like purchasing a home or funding education.
  • Consider your existing equity compensation and Nike stock holdings.

The Role of a Certified Financial Planner

Navigating the complexities of the Nike Mega Backdoor Roth requires expertise. A certified financial planner can:

  • Optimize contributions to maximize tax benefits.
  • Provide a personalized investment strategy and fund allocation.
  • Help manage taxable income and ensure compliance with contribution limits.

Conclusion

The Nike Mega Backdoor Roth 401(k) is a powerful tool for high-income earners to boost their retirement savings and achieve tax diversification. By carefully planning contributions, understanding the tax implications, and aligning the strategy with your financial goals, you can unlock significant long-term benefits. Collaborating with a financial advisor ensures you make the most of this opportunity, setting you on a path to a secure and prosperous retirement.

Author: Cecil Staton, CFP® CSLP®

Author: Cecil Staton, CFP® CSLP®

I'm a fee-only financial advisor for dentists serving clients nationwide.

I left the large financial institutions to start my own RIA. I did it so people could pay for real planning and not just an agenda to sell a hidden product. As a fiduciary, Arch Financial Planning, LLC was built on that promise by delivering non-cookie-cutter plans that provide solutions to achieve their goals.

Who do I serve?

Typical: Dental practice owners
Goals: Pay off student debt, start/sell a practice, and grow their wealth
Location: Virtually anywhere in the U.S.

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This website (the “Blog”) is published and provided for informational and entertainment purposes only.  The information in the Blog constitutes the Content Creator’s own opinions and it should not be regarded as a description of services provided by Arch Financial Planning, LLC or Cecil Staton, CFP® CSLP®.

The opinions expressed in the Blog are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.  It is only intended to provide education about personal financial planning.  The views reflected in the commentary are subject to change at any time without notice.

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