Name: How Does the Mega Backdoor Roth Conversion Work?
Uploaded: 2026-09-10T05:44:55+00:00
Duration: 2487 s

Speakers

Ben Carlson — Director of Institutional Asset Management, Ritholtz Wealth Management

Bill Sweet — Partner & CFP, Ritholtz Wealth Management

Summary

The hosts answer listener questions on investment strategy and retirement planning. Ben Carlson reviews academic research supporting trend-following and momentum strategies for risk reduction and diversification. The team also covers mega-backdoor Roth 401(k)s, investing down-payment cash in short Treasury ETFs, pensions as income rather than bond allocations, Roth versus traditional 401(k) contributions, and how AI job risk might affect portfolio risk.

Ben cites AQR, Meb Faber, Wes Gray, Jegadeesh/Titman, Rouwenhorst, and Fama-French research showing trend-following and momentum have worked across markets and can reduce severe drawdowns.
Bill explains mega-backdoor Roth 401(k) after-tax contributions and notes access depends on the employer plan.
Ben suggests a 3-7-year Treasury bond ETF for a five-year home down payment.
A pension that covers expenses can allow more equity risk, while bonds or cash can still serve as a retirement shock absorber.
Bill says a $200k single earner should favor Roth 401(k) contributions at current marginal rates.
The hosts discuss AI job disruption, noting software engineering job data has not weakened yet and one hedge is owning AI or large tech companies.

Ideas

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 4:32

Trend-following reduces crashes and diversifies portfolios

Ben argues trend-following has strong long-run research support, citing AQR's simulated evidence back to 1880 and Wes Gray's work showing trend-following cuts the worst drawdowns. He likes it not mainly for outperformance but as a behavioral release valve that reduces severe crashes and diversifies against beta and momentum.

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 5:02

10-month moving average reduces volatility and crashes

Meb Faber's tactical allocation rule—hold an asset when it is above its 10-month moving average and move to cash when below—produced stock-like or asset-class-like returns with smaller crashes and lower volatility across stocks, bonds, real estate and commodities since the early 1900s, and would have helped avoid much of the 2008 crash.

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 6:40

Momentum factor is robust and diversifies

Momentum is robust across markets and size groups; Jegadeesh/Titman, Rouwenhorst, and Fama-French show recent winners keep outperforming and losers keep underperforming over 3-12 month horizons, and Fama-French found it works even better in large caps, so Ben uses it alongside indexing and trend as a diversifier.

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 20:48

Use 3-7-year Treasury ETF for down payment

For a home down payment roughly five years away, Ben recommends matching assets to liabilities and simply using a 3-to-7-year Treasury bond ETF yielding about 4.5%; bonds and cash are paying interest again, or a 50/50 portfolio can be used if taking a little more risk.

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 26:56

Inflation-adjusted pension permits more equity risk

An inflation-adjusted pension that covers fixed expenses acts as an income piece, allowing a retiree to take more equity risk; bonds or cash can still serve as a rebalancing shock absorber near retirement, but the pension reduces the need for a dedicated bond allocation.

Ben Carlson Director of Institutional Asset Management, Ritholtz Wealth Management 36:36

Own AI/robots to hedge job disruption

Ben relays Josh Brown's hedge that workers worried about AI taking their jobs should own the robots and invest in them, and Bill notes they may already have exposure through Google, Apple, and Microsoft; AI ETFs could be used for this hedge.

How Does the Mega Backdoor Roth Conversion Work?

Summary

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