Mega Backdoor Roth Boosts Your Retirement Savings
The mega backdoor Roth IRA is a powerful strategy for high earners who want to maximize retirement savings and shield future investment growth from taxes. When the right conditions are in place, this often-overlooked approach can provide a valuable way to move additional dollars into a Roth account — money that can support you in retirement or be passed along to your heirs. Let’s start with the basics.
The retirement savings basics
When you choose to make Roth contributions, you’ll contribute to your account with after-tax dollars. This means you will pay taxes on the money the year you earn it, and you won’t benefit from any tax advantages at the time you contribute.
In exchange, you won’t owe any taxes on your contributions or when you withdraw in the future. Additionally, as long as your Roth contributions have “aged” for at least five years, any earnings your contributions accrue won’t be taxed either.
The 2025 caps have changed since previous years. A person younger than 50 can contribute $23,500 into their 401(k). People aged 50 and older can contribute an additional $7,500 annually in catch-up contributions, for a total of $31,000 in employee deferrals. Those aged 60 to 63 may be eligible to contribute an enhanced catch-up of $11,250, raising their employee deferral total to $34,750, depending on their plan.
Limits for total employee and employer contributions have also increased, and are $70,000 (or $77,500 for those 50+ with standard catch-up, or up to $81,250 for those 60–63 with enhanced catch-up).
Some companies’ 401(k) plans are structured to allow for additional after-tax contributions, which can create a “mega backdoor” route through which you can invest even more—up to that total combined contribution limit each year.
We’ll walk you through how it works and if it’s a good move for you, but know now that this is complicated, advanced financial planning with the potential for some unexpected tax bills—definitely work with an expert on this one.
Is a mega backdoor Roth even possible with your 401(k) plan?
There are two prerequisites—if you’re unsure about either, double-check with HR or contact your plan administrator.
- Your 401(k) plan must allow for after-tax contributions. Not all 401(k) plans even let you make after-tax contributions. Quick vocab lesson: after-tax is an entirely different contribution category from pre-tax and post-tax. (We’ve mentioned before how after-tax and post-tax used to be conflated.)
- Your 401(k) plan must also allow for in-service withdrawals or in-plan Roth conversions. In-service withdrawals (also called in-service distributions) mean you can take money out of your 401(k) while you’re still employed with the company, and an option is to roll it into a Roth IRA. In-plan conversions let you move your after-tax contribution into Roth dollars within the 401(k).
If you’re a no on either of these, the mega backdoor Roth isn’t a good strategy for you. Let’s say you’re a “yes” on both.
How a mega backdoor Roth works
When you use the mega backdoor strategy, you take all the money from the after-tax contribution to your 401(k) and quickly transfer it into either a Roth IRA or to Roth dollars within your 401(k) before it can accrue investment earnings. Once it’s in a Roth-style account, the money will grow tax-free instead of tax-deferred, which means you won’t owe taxes on those earnings. Ever. And neither will your beneficiaries.
Speed is key, which is why in-service withdrawals or in-plan conversions is one of the prerequisites—you don’t want to have to wait until you leave your employer to move that chunk of money. If you leave it as an after-tax contribution in your 401(k), it’s going to be accruing taxable earnings the whole time. Speed is also part of what makes this strategy complicated. Some plans allow for automated in-plan conversions, but not all. Doing the process manually is complicated, and a financial planner or tax professional will definitely come in handy.
“Oh no! My after-tax contributions accumulated gains.”
Say you miss an in-service withdrawal or in-plan conversion and you’ve accrued some earnings. Not the end of the world. The IRS confirms you can shift the contribution portion into a Roth IRA and the gains portion into a traditional IRA, which is kind of a hassle, but you’ll preserve your contribution’s beneficial tax status.
Calculate your after-tax contribution amount
You’ll notice that we keep saying “up to” in additional contributions — that’s because everyone’s after-tax amount can look different. If you’re trying to make up the difference between the $23,500 / $31,000 employee deferral limit and the $70,000 / $77,500 (or $81,250 for ages 60–63) overall limit, you have to account for any employer matching and profit-sharing along the way.
Let’s walk through a couple of simple scenarios.
Naomi, 42
- Max limit, based on age: $70,000
- Salary: $100,000
- Employer matching: Up to 3% of salary
If Naomi maxes out the $23,500 employee contribution, and her company matches $3,000, that means Naomi has room for $43,500 in after-tax contributions.
Hugo, 55
- Max limit, based on age: $77,500
- Salary: $100,000
- Profit-sharing: 25% of salary
At 55, Hugo has higher limits. If he maxes out his $31,000 employee contribution and gets $25,000 from his employer, Hugo has room for $21,500 in after-tax contributions.
One caveat: Some 401(k) plans do cap the amount you can contribute after-tax, so even if you have room to contribute more, you might not be able to. There are also some instances where a company’s highest earners wouldn’t be able to max out their after-tax contributions due to IRS nondiscrimination tests, which are designed to ensure those earning the most aren’t also saving at a higher rate than everyone else at their organization.
And it bears repeating: after-tax contributions aren’t deductible, and if left in the 401(k) plan instead of being shifted into a Roth-style account, the earnings could be taxed when withdrawn.
When you should consider a mega backdoor Roth
Mega backdoor Roths are an interesting option for high-earners looking for additional ways to save for retirement or for their heirs. It’s worth exploring with your financial planner if:
- You’ve maxed out your personal 401(k) contributions. That comes first. When you’ve done that and still have more to save, you can consider going for a mega backdoor strategy.
- You have additional funds you want to save for retirement. Mega backdoor Roths are a great way to sock away cash every year. Still, there are many other financial strategies to consider, and things like time horizon and liquidity are important considerations.
This content is for informational and educational purposes only and should not be construed as individualized advice or a recommendation for any specific product, strategy, or course of action. Brighton Jones, its affiliates, and employees do not provide personalized investment, financial, tax, or legal advice through this communication. This material is not intended to, and does not, create a fiduciary relationship under ERISA or any other applicable law. For individualized advice tailored to your specific circumstances, please consult with your adviser.
