Have you ever considered what you can do to save more on a Roth basis outside of your typical direct or backdoor Roth IRA contribution? For many high-income earners, $7,500 ($8,600 if age 50 or older) to a Roth IRA just is not enough, and many wish they could save more in order to build a larger bucket of tax-free money in retirement. While not applicable to everyone, some of you may have access to a mega backdoor Roth 401(k) strategy. This strategy allows you to contribute significantly more money to Roth accounts than would otherwise be possible through an IRA alone. Does your employer plan allow for this? Let us find out together.
The mega backdoor Roth strategy works similarly to a traditional backdoor Roth IRA strategy, where an individual makes a nondeductible contribution to a traditional IRA and then immediately converts it to a Roth IRA. However, the mega backdoor Roth strategy utilizes a 401(k) plan instead. The first step is making after-tax contributions within your 401(k) plan. The second step is utilizing in-plan conversions to take those after-tax contributions and convert them to your Roth 401(k) or Roth IRA, depending on plan rules. If completed correctly, you have already paid income taxes on the contributions, while any earnings converted are generally taxable at the time of conversion. If this is done relatively quickly, the earnings amount is typically zero or close to it. Once converted, the funds can grow tax-free, and qualified distributions in retirement will also be tax-free. You should note that not all plans allow the features required for this strategy, so ensuring your plan does is essential.
Below are the plan features required for this strategy:
1. Your plan must permit after-tax contributions
2. Your plan must allow for a Roth 401(k)
3. Your plan must permit in-plan conversions or in-service withdrawals of after-tax contributions and earnings
In step one, your plan must allow contributions to be made on an after-tax basis. These are separate from traditional pre-tax or Roth contributions. Similar to Roth contributions, after-tax contributions are made using money that has already been taxed. However, unlike Roth contributions, earnings on after-tax contributions are taxable at ordinary income rates upon withdrawal. If the funds are not immediately converted, the earnings will continue growing tax deferred and will be taxable as ordinary income upon withdrawal.
That takes us to the second and third requirements: the ability to utilize a Roth 401(k) and complete in-plan conversions or in-service withdrawals of after-tax contributions and earnings. If your plan does not allow you to convert the after-tax contributions to a separate Roth 401(k) or Roth IRA, then the strategy is unsuccessful. Some plans allow automatic conversions of after-tax contributions into a Roth 401(k), making the process more seamless. Other plans require you to complete the conversions manually, in which case having a financial professional guide you through the process may be beneficial. Some plans also allow in-service withdrawals where you move after-tax contributions and prorated earnings out of your 401(k) plan and into an external Roth IRA and traditional IRA at a custodian such as Charles Schwab. The key with either option is being able to move the contributions and earnings into the appropriate Roth and traditional accounts based on their tax treatment.
If your plan has all the applicable features required to make the strategy work, you must also be aware of the annual contribution limits. In 2026, for those under age 50, you may contribute up to $24,500 on either a pre-tax, Roth, or combined basis. For those ages 50 or older, you may contribute an additional catch-up contribution of $8,000, bringing the total to $32,500. For those between ages 60 and 63, you are allowed a super catch-up contribution of $11,250 for a total of $35,750. Beginning in 2026, employees age 50 or older with prior-year FICA wages exceeding $150,000 must make catch-up contributions on a Roth basis.
In addition to your own pre-tax and Roth contributions, you can make additional after-tax contributions, plus receive employer matching contributions, up to a total combined annual limit of $72,000 ($80,000 if age 50 or older, and $83,250 if between ages 60 and 63).
For example, someone who is 40 years old may contribute up to $24,500 to either a traditional/pre-tax or Roth 401(k). Assuming their employer match for the year is $10,000, this brings the total annual contributions to $34,500. They may then contribute up to an additional $37,500 on an after-tax basis. Using the mega backdoor Roth strategy, someone who contributes these funds on an after-tax basis and immediately converts the amount before meaningful earnings accumulate can successfully increase their pool of tax-free retirement assets. Depending on plan provisions and rollover structure, some converted Roth assets may remain accessible prior to retirement, allowing for additional flexibility and the potential for substantial long-term tax-free growth.
This strategy may not be applicable to everyone. For starters, many retirement plans do not include the features needed for this strategy. Additionally, not everyone is expected to be in a higher tax bracket in the future than they are today, which may reduce some of the long-term tax advantages of Roth contributions. You should also consider your short-, medium-, and long-term goals when assessing what types of savings strategies make the most sense across your time horizon. It is important to evaluate your current tax situation and determine whether making pre-tax contributions to reduce your taxable income may be more beneficial. Likewise, reviewing your tax situation annually can help determine whether additional Roth conversions make sense in a given year based on your specific circumstances. You should also evaluate whether the added complexity associated with this strategy aligns with your financial goals, or whether other savings strategies may be more appropriate.
All of these considerations, among others, are areas where your CERTIFIED FINANCIAL PLANNER® professional can help assess whether this strategy is suitable for you. Finally, without guidance from a financial planner and tax professional, it may be easy to overlook important implementation and reporting requirements associated with this strategy.
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