What is a Mega Backdoor Roth IRA?

IRAsInvesting

May 1

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While a Roth IRA is a popular retirement-savings option, many people in higher tax brackets are unable to make direct contributions to one given IRS income limits. One potential solution? A "mega backdoor" Roth strategy. While this approach isn’t available to everyone and often complex, investors seeking to contribute more money to their Roth accounts might deem it worth considering. This post covers everything you need to know about mega backdoor Roth IRAs including what they are, how they work, advantages and disadvantages, and how to determine if this option is right for you. Let’s dive in!

An overview of IRAs, Roth IRAs, and backdoor Roths

To gain a complete understanding of a mega backdoor Roth strategy, you’ll want to first familiarize yourself with some IRA, Roth IRA, and backdoor Roth IRA basics.

Roth and traditional IRAs

To gain a complete understanding of a mega backdoor Roth strategy, you’ll want to first familiarize yourself with some IRA, Roth IRA, and backdoor Roth IRA basics.

Roth and traditional IRAs
An individual retirement account (IRA) offers various tax benefits and is specifically designed to help you save for retirement. You can invest in a variety of assets within the account including stocks, bonds, (exchange-traded funds ETFs), and mutual funds, and while several types of IRAs are available, the two most common options are traditional and Roth IRAs.

While a traditional IRA allows you to contribute pre-tax dollars to the account—which then grow over time and dictate you pay taxes upon withdrawal—a Roth IRA requires you to contribute after-tax dollars. The money in a Roth IRA also grows over time, and you can withdraw amounts contributed both penalty- and tax-free at any time and for any reason; those who are at least age 59½ and wish to withdraw earnings from the account can generally do so tax-free provided they’ve owned the account for at least five years (known as the “five-year rule”).

Roth IRA income & contribution limits

Single filers with a modified adjusted gross income (MAGI) exceeding $165,000 in 2025 aren’t eligible to contribute to a Roth IRA, while those with a MAGI between $150,000 and $164,999 can contribute a reduced amount (with full contributions available to those with a MAGI less than $150,000).

The maximum MAGI limit for joint filers making a full Roth IRA contribution is $236,000 based on contribution qualifications, while those with a joint MAGI between $236,000 and $245,999 see a reduced maximum allowed annual contribution. A joint MAGI of $246,000+, meanwhile, is a disqualifying Roth IRA contribution factor in 2025.

The maximum annual contribution limit for traditional and Roth IRAs is $7,000 for those under age 50 in 2025, while investors aged 50+ can contribute an extra $1,000 (known as a “catch-up” contribution and adjusted annually for inflation).

Backdoor Roth IRAs

Backdoor Roth IRAs are popular among individuals who are ineligible for a Roth IRA due to high income levels as well as investors seeking to lower their tax burden during retirement. Various backdoor Roth IRA utilization methods typically involve converting some or all traditional IRA funds to a Roth IRA, and while there is no limit to the amount of money you can convert, the conversion process does require you pay taxes on this sum.

What is a mega backdoor Roth?

A mega backdoor Roth, essentially a souped-up version of a backdoor Roth, is a strategy that allows individuals to contribute more money to a Roth IRA and/or Roth 401(k) above standard contribution limits.

Mega backdoor Roth requirements

To implement a mega backdoor Roth strategy, you’ll need the following:

A 401(k), 403(b), or 457(b) plan with your current employer (referred to as “401(k)s” for the sake of simplicity)
A Roth option available with your current employer, either in the form of an IRA or 401(k)
The ability to make after-tax contributions separate from traditional 401(k) and Roth 401(k) contributions, vital criterion as this allows you and your employer to increase your 401(k) contributions from $23,500 to $70,000 (as of 2025) plus any eligible catch-up contributions (it’s estimated that fewer than half of all 401(k) plans allow after-tax contributions, so be sure to check with your benefits plan administrator regarding this)
Allowable in-service distributions or conversions whereby your employer permits you to withdraw money from the plan while you’re still employed (an “in-service distribution”) or move money from the after-tax portion into the Roth 401(k) portion

How a mega backdoor Roth works

A mega backdoor Roth strategy involves three defined steps:

1. Maximizing your pre-tax 401(k) or Roth 401(k) contribution: Start by contributing the maximum amount to your 401(k) for the year, per 2025 limits of $23,500 (under age 50), $31,000 (ages 50-59), and $34,750 (ages 60-63).

2. Making additional after-tax contributions: After maxing out your pre-tax 401(k) contributions, you can then contribute additional after-tax contributions up to the overall 401(k) limit for the year ($70,000 in 2025) plus any eligible catch-up contributions. Note these aggregate limits include:

Your contributions from Step 1
Your after-tax contributions
Any employer matching contributions

3. Rolling over after-tax contributions or converting to Roth: After completing the first two steps, you’ll roll after-tax contributions into a Roth IRA or convert them to a Roth 401(k) and thus benefit from tax-free growth while not incurring taxes when you withdraw the money (provided you follow Roth IRA withdrawal rules).

Mega backdoor Roth advantages

A mega backdoor Roth is a popular option (and for good reason!) as those who meet eligibility criteria receive a host of otherwise unavailable benefits with key advantages including:

Increased retirement savings

Mega backdoor Roth IRAs allow you to contribute significantly more to your retirement plan and thus add thousands of extra dollars to your fund; maximizing this opportunity each year puts you in a great position when the time comes to leave the workforce.

Lower taxes in retirement

As high earners may find it challenging to manage additional income after maxing out annual 401(k) contributions, paying taxes on contributions now via a mega backdoor Roth strategy eliminates concerns regarding tax implications on Roth withdrawals during retirement.

Enhanced financial security

A mega backdoor Roth enables you to leverage any current high-earning potential given the fact that substantial income now can suddenly give way to uncertain circumstances in the future; adopting this strategy can thus give you peace of mind you’ll have financial security regardless of the unexpected.

Mega backdoor Roth disadvantages

While there’s a lot to like about mega backdoor Roth strategies, several disadvantages are in play as well including:

High complexity

While opening a Roth IRA is relatively straightforward, implementing a mega backdoor Roth strategy is often quite complicated with a confusing process. It's thus advisable to consult a financial expert if you're considering this option.

Limited availability

Mega backdoor Roth strategies aren’t very common as most employers—save for large companies and solo 401(k) plan participants—don’t offer after-tax contributions or in-service distributions within their retirement plans.

The 5-year rule

Earnings from your Roth IRA must generally remain in the account for at least five years, and you’re also prohibited from making tax-free withdrawals until you reach age 59½.

A need for extra money

To take full advantage of a mega backdoor Roth strategy, you must have a significant salary or save additional funds to do so.

Limited employer contributions

While employer matches and profit-sharing contributions are beneficial, they can limit your ability to make after-tax contributions as these amounts count towards maximum contribution limits: causing you to potentially exceed said limits should your employer make profit-sharing contributions at the end of the calendar year and you’ve already maxed out after-tax contributions. In this case, your employer is required to send back excess contributions as a corrective distribution that can in turn trigger a taxable event due to earnings on the overcontributed amount.

After-tax contributions subject to taxes on earnings

When you convert after-tax contributions to a Roth IRA or 401(k)—as described earlier in Step 3—no taxes are owed on the conversion, but you’re required to pay taxes on any investment earnings generated from after-tax dollars post-conversion. To minimize potential tax implications, then, it’s advisable to convert these after-tax funds as quickly as possible. As an immediate conversion may also result in missed market opportunities, it’s recommended you consult with a financial advisor to optimize your conversion timing.

Who should consider a mega backdoor Roth strategy?

Mega backdoor Roth strategies aren’t for everyone but might be good for you if:

Your annual income exceeds $165,000, disqualifying you from a traditional Roth IRA
You have the ability to make after-tax contributions to your employer’s 401(k) plan
You’ve already maxed out your pre-tax 401(k) or Roth 401(k) contributions
You have enough of a financial cushion to cover day-to-day expenses and thus comfortably save more for retirement

The bottom line: mega backdoor Roth IRAs

When used correctly, mega backdoor Roth strategies are often an effective way for high earners to access traditional Roth IRA benefits perhaps otherwise out of reach, offer tax advantages, and can help strengthen retirement plans for eligible employees. Given their complexity, however, we recommend consulting with a financial advisor to determine if they’re suitable for your own unique situation.

Still have questions about mega backdoor Roths? Schedule a FREE discovery call with one of our financial advisors to get them answered.

FAQs

401(k) plans must adhere to various IRS regulations designed to ensure all participating employees can benefit fairly. One such regulation is the Actual Contribution Percentage (ACP) test—which focuses primarily on employer-match contributions and voluntary employee after-tax contributions—with the IRS calculating average contribution percentages for high-income earners (making $160,000+ in 2025) and then comparing these to those of their lower-earning peers. If the difference between these two groups exceeds IRS thresholds, as it does in many organizations, the plan is likely to fail the ACP test.

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