What is a Mega Backdoor Roth and How Does it Work?

Are you earning too much to contribute directly to a Roth IRA? Or are you simply looking for ways to supercharge your retirement savings? 

The Mega Backdoor Roth strategy could be your ticket to significantly increasing your tax-advantaged retirement contributions, far beyond the traditional limits.

This guide will walk you through what the Mega Backdoor Roth is, how it works, who it’s for, and how you can use it to maximize your savings.

What is a Mega Backdoor Roth?

The Mega Backdoor Roth is a powerful retirement savings strategy that allows high earners to bypass income limits and contribute extra money into a Roth IRA or Roth 401(k) using after-tax 401(k) contributions.

The method is especially helpful for those who are not eligible to make direct Roth IRA contributions due to income caps. 

For 2025, individuals earning $165,000+ (single) or $246,000+ (married filing jointly) are completely phased out from making direct Roth IRA contributions. That’s where the Mega Backdoor Roth comes in.

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How Mega Backdoor Roth Works

Source: Fidelity

Mega Backdoor Roth strategy involves two main steps:

1. Make After-Tax Contributions to Your 401(k)

Most people know about pre-tax and Roth 401(k) contributions, which are capped at $23,500 for 2025 (under age 50). But what many don't realize is that the total 401(k) contribution limit, including employer contributions and after-tax contributions, is actually $70,000.

So, if you've already maxed out your pre-tax or Roth contributions and received some employer match, you may still have room to contribute after-tax dollars up to that $70,000 total.

Example: If you contribute $23,500 and your employer matches $11,750, you can still add $34,750 in after-tax contributions.

2. Convert After-Tax Contributions to a Roth IRA or Roth 401(k)

Once you've made after-tax contributions, the next step is converting them. You have two options:

In-plan Roth conversion to move the funds into your Roth 401(k).

Rollover to a Roth IRA (this is often done through in-service withdrawals if your plan allows).

This conversion is key because it lets your investments grow tax-free. You’ve already paid taxes on the contribution, so future withdrawals from the Roth account will be tax-free—assuming you follow the usual Roth rules.

Requirements to Use a Mega Backdoor Roth Strategy

Not all workplace retirement plans allow Mega Backdoor Roth strategy. Your 401(k) plan must offer specific features. Here’s what you need:

Your Plan Must Allow After-Tax Contributions: 

This is non-negotiable. If your employer's plan doesn’t support after-tax contributions, the strategy is off the table.

And Either One of the Following:

In-Plan Roth Conversions : Allows you to convert after-tax contributions to Roth 401(k).

In-Service Withdrawals: Lets you move after-tax money (and earnings) to a Roth IRA while still working for your employer.

If your plan has both options, even better!

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Benefits of the Mega Backdoor Roth

Here’s the benefits of a Mega Backdoor Roth strategy you should know:

1. Massive Contribution Potential: Up to $70,000 in total 401(k) contributions (including employer match and after-tax).

2. Tax-Free Growth: After conversion, earnings grow tax-free in a Roth account.

3. Bypass Roth IRA Income Limits: Perfect for high-income earners locked out of direct Roth IRA contributions.

4. Early Retirement Flexibility: Roth accounts aren’t subject to Required Minimum Distributions (RMDs), unlike traditional accounts.

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Drawbacks of the Mega Backdoor Roth to Consider

While the benefits are huge, the Mega Backdoor Roth strategy does come with some caveats:

1. Tax on Earnings at Conversion: You’ll pay taxes on any earnings included in the conversion.

2. Complexity: Not all plans are set up to make this easy. You'll need to monitor contributions, conversions, and tax implications carefully.

3. No Employer Match on After-Tax Contributions: Most companies only match pre-tax or Roth contributions.

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How to Set Up Mega Backdoor Roth

So, how to set up a Mega Backdoor Roth strategy? Here’s step-by-step guide:

1. Check Your 401(k) Plan: Confirm it allows after-tax contributions and either in-plan conversions or in-service rollovers.

2. Start Making After-Tax Contributions: Only after maxing out regular contributions.

3. Convert Regularly: Either to a Roth 401(k) (in-plan) or Roth IRA (via rollover).

4. Monitor Earnings: Pay attention to taxes on earnings that are converted.

5. Consult a Tax Advisor: This is a complex strategy; professional guidance is highly recommended.

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Conclusion

The Mega Backdoor Roth strategy is a smart, powerful way for high-income earners to boost their retirement savings and enjoy the long-term benefits of tax-free growth. 

So, is the Mega Backdoor Roth strategy worth it? That depends on your situation. Consider the following questions:

1. Does your employer’s plan support it?

2. Are you maxing out your regular contributions?

3. Can you handle the tax implications and paperwork?

4. Do you expect to be in a higher tax bracket in retirement?

If you answered “yes” to most of the above, the Mega Backdoor Roth could be a game-changer for your financial future.

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FAQ

Who should consider the Mega Backdoor Roth?

Anyone earning too much to contribute to a Roth IRA directly and already maxing out their 401(k) should explore this option.

Can I do the Mega Backdoor Roth every year?

Yes, as long as your plan allows it and you're within the IRS contribution limits.

Do I need to pay taxes on the conversion?

Only on the earnings, not the after-tax contributions themselves.

Is it better to convert in-plan or roll over to a Roth IRA?

It depends on your goals. Roth IRAs have more flexibility (no RMDs), but in-plan conversions are more straightforward if your plan supports them.

What if my plan doesn’t allow after-tax contributions?

Unfortunately, you can’t use this strategy unless your employer offers that feature. You might consider lobbying your HR department or choosing a new employer plan in the future.