You've maxed out your 401(k). You've done the backdoor Roth IRA. But you still want to save more for retirement in tax-advantaged accounts. Enter the mega backdoor Roth, a strategy that can let you contribute up to $69,000 to retirement accounts in 2024, with a significant portion going to Roth.
Understanding the Contribution Limits
The 401(k) system has two limits that matter here:
Employee contribution limit (2025): $23,500 (plus $7,500 catch-up if 50+)
Total contribution limit (2025): $70,000 (includes employee contributions, employer match, and after-tax contributions)
The gap between these limits is your mega backdoor opportunity.
Example: You contribute $23,500 (your max). Your employer matches $10,000. That's $33,500 total. The gap between $33,500 and $70,000 is $36,500, and that's the space where the mega backdoor Roth operates.
How It Works
The mega backdoor Roth involves three steps:
- Make after-tax (non-Roth) contributions to your 401(k) up to the total limit
- Convert those after-tax contributions to Roth, either within the 401(k) or by rolling to a Roth IRA
- The converted amount grows tax-free and can be withdrawn tax-free in retirement
The key distinction: after-tax contributions (not to be confused with Roth contributions) are made with post-tax dollars but grow tax-deferred. Without conversion, you'd owe taxes on the earnings when withdrawn. By converting promptly to Roth, you avoid that future tax bill.
Requirements for Mega Backdoor Roth
Your 401(k) plan must allow:
- After-tax contributions (not all plans do)
- In-service withdrawals or in-plan Roth conversions
Without both features, you can't execute this strategy. Check your plan documents or call your HR/benefits department.
๐ ๏ธ Recommended Tool
Your 401(k) administrator's website should show your plan's contribution types and limits. Look for "after-tax contributions" in your enrollment options. If unsure, contact your plan administrator directly. They can confirm whether your plan supports this strategy.
Step-by-Step Execution
Step 1: Calculate Your Available Space
Total limit ($70,000) minus your employee contributions minus employer contributions equals your after-tax contribution room.
Step 2: Enroll in After-Tax Contributions
Log into your 401(k) and elect after-tax contributions. Some plans let you specify a dollar amount; others use a percentage. Calculate carefully to avoid exceeding the total limit.
Step 3: Convert Promptly
This is critical. Convert the after-tax dollars to Roth as quickly as possible, ideally immediately. This minimizes taxable earnings. Many plans offer automatic in-plan Roth conversions. If not, roll out to a Roth IRA after each contribution (if your plan allows frequent in-service withdrawals).
Step 4: Handle the Earnings
Any earnings on after-tax contributions before conversion are taxable. If you convert $10,000 in after-tax contributions plus $50 in earnings, you owe tax on the $50. Converting promptly keeps this minimal.
In-Plan Conversion vs. Rollover to Roth IRA
In-plan Roth conversion:
- Money stays in 401(k), moved to Roth 401(k) bucket
- Often can be automated
- Subject to 401(k) investment options and rules
Rollover to Roth IRA:
- Money leaves 401(k), goes to your Roth IRA
- More investment flexibility
- Requires plan to allow in-service withdrawals
- No RMDs (401(k) Roths had RMDs until 2024 law change)
Either approach works. Many people prefer the Roth IRA rollover for the flexibility, but in-plan conversion is simpler if your plan supports automatic conversions.
๐ Further Reading
The New Retirement Savings Time Bomb by Ed Slott covers advanced Roth strategies including the mega backdoor Roth, with detailed guidance on avoiding common mistakes.
Why This Matters in Your 40s
Your 40s are prime time for the mega backdoor Roth:
- Peak earning years: You likely have the income to fund substantial after-tax contributions
- Long time horizon: 20+ years for Roth funds to grow tax-free
- Tax rate uncertainty: Locking in Roth treatment protects against future tax increases
- Diversification: Creates tax-free bucket to complement tax-deferred accounts
Potential Risks and Considerations
Legislative risk: Congress has repeatedly considered eliminating the mega backdoor Roth. It could be closed in the future. Use it while it's available.
Complexity: This is an advanced strategy. Mistakes can trigger taxes and penalties. Consider consulting a tax professional.
Pro-rata rule doesn't apply: Unlike traditional backdoor Roth IRAs, the pro-rata rule doesn't complicate 401(k) after-tax conversions. You can convert just the after-tax contributions.
Who Should Consider This?
Good candidates:
- High earners who've maxed standard retirement accounts
- Those with plans that allow after-tax contributions and conversions
- People who can afford to save aggressively
- Those who expect to be in the same or higher tax bracket in retirement
Skip it if:
- You haven't maxed your standard 401(k) and IRA contributions
- Your plan doesn't support the required features
- You need the cash flow for other priorities
The Zen Take
The mega backdoor Roth is the holy grail for high-earning savers, a way to shelter tens of thousands more in tax-advantaged accounts. But it's not for everyone, and it may not be available forever.
If you have the income, the plan features, and the discipline to execute it properly, this strategy can add hundreds of thousands to your retirement savings over time. The tax-free growth and withdrawals compound into significant wealth.
But don't let tax optimization become the tail wagging the dog. The mega backdoor Roth is a powerful tool, but it's just a tool. The fundamentals (spending less than you earn, investing consistently, staying the course) matter more than any tax strategy.