Making the Most of your Merck 401(k): How the Spillover Election and Automatic Roth Conversion Work Together
By Jim McGowan, CFP®
For Merck employees, understanding the details of your 401(k) plan can mean the difference between simply saving and strategically building long term financial security. Two important features, the Spillover Election and the automatic conversion of after-tax contributions to Roth.
What Is the Spillover Election?
The Spillover Election is a feature that ensures your contributions do not unintentionally limit your ability to receive the full company match. The IRS places a limit on the amount of pretax and Roth contributions you can make each year ($23,000 for 2025 if you are under 50; $30,500 if you are 50 or older). Once you reach that limit, your contributions will typically stop, and so will any associated employer matching.
However, if you elect the Spillover option, Merck will automatically redirect your contributions above the limit into the after-tax bucket. This allows you to continue receiving the full company match, even after reaching the IRS limit on regular contributions.
The Power of Automatic Roth Conversion
What makes Merck’s plan especially appealing is that after tax contributions are not left sitting in the account growing tax deferred. They are automatically converted into Roth contributions through what is commonly known as a Mega Backdoor Roth. This means both your contributions and the earnings on them can grow tax free, provided you meet Roth distribution requirements.
Why This Matters
When used together, the Spillover Election and automatic Roth conversion provide a powerful strategy:
- You continue to receive valuable employer matching dollars.
- You can contribute beyond the standard IRS limits.
- Your after-tax contributions and earnings benefit from tax free growth.
Final Thoughts
Many Merck employees miss out on this opportunity simply because they are not aware of the option or have not reviewed their 401(k) settings recently. If you are aiming to build a more efficient and tax aware retirement portfolio, it is worth checking your elections or scheduling a review with a financial professional who understands your Merck benefits thoroughly.
Have questions about how this applies to your situation?
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