In simple terms, a mega backdoor Roth is a savings strategy that allows you to contribute beyond the standard 401(k) limits by making after-tax contributions to your 401(k), then converting those funds into Roth dollars, either into your Roth 401(k) or a Roth IRA.
Each year the IRS announces annual contribution limits for various retirement accounts. The 2025 limits are outlined in depth in this blog post by Alicia Vande Ven. In addition to contribution limits, there are income limits. For instance there is an income limit on contributing to a Roth IRA, which restricts some investors from building up their Roth assets over the course of their working years. Why do we like Roth assets? Many reasons! But distributions from Roth accounts are not subject to tax (so long as distributions are qualified) and there are no required minimum distributions from Roth IRAs. Read more on the benefits of Roth accounts in Alicia’s Roth Conversion blog.
For more than a decade now, a growing number of employers have begun offering the mega backdoor Roth option, giving their employees the ability to not only save more money towards retirement, but also grow their Roth account balances in order to benefit from the Roth status during the distribution phase of their lives.
There are several stipulations and considerations in utilizing the mega backdoor Roth strategy. The following information provides a general outline of the concept, but it is best to discuss your personal situation with your financial and tax professionals.
How Does a Mega Backdoor Roth Work
- Contribute to your 401(k) (up to the annual limit)
- Make additional after-tax contributions
- Then convert those after-tax funds:
- To your Roth 401(k) (if allowed by your plan), or
- To your Roth IRA via an in-service distribution
- Most custodians who offer the mega backdoor Roth option also offer an auto-conversion option, which helps streamline this process
- Conversion of after-tax funds is usually tax negligible (especially with the auto-conversion set up). However, you could owe taxes on earnings at the time of conversion.
- Keep in mind, there is a big difference between converting after-tax dollars and pre-tax dollars. If you are looking to convert pre-tax dollars in your 401(k), check out Alicia’s blog on Roth Conversions.
- Your employer can make a matching contribution
The contribution breakdown can be seen below:
2025 Contribution Limits
- The below is for TOTAL contributions (employee + employer + after-tax):
- Up to $70,000 (under age 50)
- Or $77,500 (age 50-59 or 64+)
- Or $81,250 (ages 60-63)
Who Is Eligible?
- Your employer plan must allow it, meaning, your employer must allow for after-tax contributions and either:
- In-plan Roth conversions to a Roth 401(k), or
- In-service distributions to a Roth IRA
- Though not an eligibility requirement, this strategy is ideal for high-income earners who can afford the extra savings
Why Use the Mega Backdoor Roth?
- You can save more for retirement beyond the traditional annual limits
- You build your Roth assets for tax-free distributions in retirement
- Especially useful for high-income earners who are ineligible to contribute directly to a Roth IRA
Things to consider?
- Check with your employer since not all 401(k) plans offer this option
- Does it make sense for your overall financial plan? For instance, do you have other financial goals that need more immediate attention?
- How will it impact your taxes in the year you convert?
- What is your current tax rate vs your potential tax rate in retirement? Why does this matter? For more details, see our blog on Roth Conversions and their implications.
The mega backdoor Roth isn’t for everyone, but it can be a powerful tool towards meeting your retirement goals. This strategy can be complex, so always consult your tax and financial professionals.
