Want some extra money in your Roth IRA? It’s called the Mega Backdoor Roth. This strategy can help you avoid taxes and earn even more than the maximum you can put into a Roth IRA annually.

Another advantage is that not only do you have an asset and tax protected space, you can have more tax diversification during retirement. That means you can you can determine a tax rate by basically deciding how much you want to take from your Roth or tax-deferred accounts.

So How I Do This?

Now, before we proceed, please know that you try this at your own risk. There is no guarantee that it’ll work, and I’m not licensed to dispense financial advice.

Now that we got out of the way, let’s take a look at some of the steps to utilize the Mega Backdoor Roth strategy.

Rid Yourself of IRAs

Specifically, any traditional IRA, rollover IRA money, SIMPLE IRA or SEP-IRA. You’ll need to make sure that by December 31st these equal to zero, or else you’re not going to reap the benefits from the Backdoor Roth. You can take the money and convert it all into a Roth IRA (if you’re willing to pay the taxes from your earnings) or roll the money over into a 401K or 403(b).

Make a Contribution

Once you’ve rolled over your money to a Roth IRA or a 401k, then go ahead and max out (typically $5500 or $6500) a non-deductible traditional IRA for both you and your spouse. Do this come January.

Afterwards, convert this to a Roth IRA. All you have to do is just transfer the money from the traditional IRA into a Roth IRA with the same company you opened the traditional IRA with. Open a new one if you have to. There are many great companies out there, like Fidelity and Vanguard, and most places can help you set one up in minutes.

Now it might seem a little weird since this technically means the money is taxable, but you don’t need to because you already paid taxes on the money. Now you can use this money to invest.

Now some might be a little concerned at converting the money too quickly, but there doesn’t seem to be any evidence so far that says you shouldn’t. You can convert the money in as little as two business days (simply because of the need to wait for the funds to come through) or wait a little longer if you’re nervous.

The cool thing about this is that there are no limits as to how much you can convert. So yes, you may only be able to contribute a max of $5,500 annually, but you can convert as much as you want. So depending on how much you have in your traditional IRA, that amount is how much you can technically have in a Roth IRA.

Now, the Backdoor Roth IRA may not be here forever, so take advantage of it now while you can. Before, only people who earned under a certain threshold were allowed to do so, but right now it seems that anyone can use this method.