There's a way to avoid those taxes, though. If you make frequent withdrawals of after-tax money (perhaps monthly or quarterly) or you leave your contributions in a money market fund, the earnings should be minimal. Also, if your investments don't yield any return over a given period (or have a tough stretch and lose money), there are no applicable taxes.
This can be tricky if you are making after-tax contributions and your employer doesn't allow for in-service withdrawals. You can still contribute after taxes and transfer the funds to a Roth IRA when you leave your job, but any earnings on after-tax investments could create a sizable tax bill. Consider investing those after-tax funds anyway and transferring the earnings to a traditional IRA instead to avoid the tax bill.
Should I use a mega backdoor Roth IRA?
You should stick with a regular backdoor Roth IRA conversion if your income level isn't high enough. The same applies if you can't max out both your annual 401(k) and traditional IRA contributions, or your employer doesn't allow for in-service withdrawals.
But if you meet the income and savings requirements, a mega backdoor Roth IRA is a great vehicle for diversifying your retirement income -- granting you both tax-deferred income (taxable at the time of withdrawal) on your pre-tax contributions and tax-free income on your after-tax contributions (if funds are transferred to a Roth IRA). Plus, a mega backdoor Roth IRA can avoid the taxable event that a normal backdoor Roth IRA conversion often creates.
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