Mega Backdoor Roths: How They Work

Many investors choose the Roth IRA for a tax break in retirement, but it does have a restriction: income levels. Individuals who earn over the Roth IRA income limit might be locked out of contributing directly.

That’s where the mega backdoor Roth comes in. This strategy could allow you to stash an extra $46,000 into a Roth IRA or Roth 401(k) in 2024, then roll it into a mega backdoor Roth. But that “could” is big. You could even call it mega.

What is a mega backdoor Roth?

A mega backdoor Roth takes a backdoor Roth to the next level and is specifically for people with a 401(k) plan that allows after-tax contributions. They can put up to $46,000 of post-tax dollars in 2024 into their 401(k) plan and then roll it into a mega backdoor Roth, which is either a Roth IRA or Roth 401(k).

The caveat: Creating a mega backdoor Roth is complicated, with many moving parts and the potential to get hit with unexpected tax bills, so consider consulting with a financial advisor or tax pro before trying this at home.

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Mega backdoor Roth limit 2024-2025

The mega backdoor Roth allows you to save a maximum of $69,000 ($76,500 for those 50 and older) in your 401(k) in 2024.

How does this add up? The regular 401(k) contribution for 2024 is $23,000 ($30,500 for those 50 and older). You can put an additional $46,000 of after-tax dollars into your 401(k) account, assuming you don't get an employer match. If you do get an employer match, you'll need to deduct your employer contributions from the $46,000.

If you have a Roth 401(k) at work (and the plan allows for the mega option as described below), generally, you can choose whether the final destination of your mega contributions is the Roth 401(k) or a Roth IRA. If your employer offers only a traditional 401(k), then your mega contributions would end up in a Roth IRA.

In 2025, the maximum you can save through a mega backdoor Roth will be $70,000 or $77,500 for those 50 and older). Thanks to changes ushered in by Secure 2.0, people ages 60 to 63 get a supercharged catch-up contribution of up to $11,250, allowing them to save a maximum of $81,250.

Mega backdoor Roth considerations

Here’s a quick summary of what you need to have in place for the ideal mega backdoor Roth strategy.

1. Your 401(k) plan allows after-tax contributions

After-tax contributions are a separate bucket of money from your traditional 401(k) contributions. The dollars you put into an after-tax bucket are post-tax, so you've already paid taxes on them. This requirement is pretty straightforward: Either your employer plan allows after-tax contributions, or it doesn’t.

2. Your 401(k) lets you move your after-tax money

Your employer has to offer either in-service distributions to a Roth IRA — that is, you can take money out of the 401(k) plan while you’re still working at the company — or lets you move money from the after-tax portion of your plan into the Roth 401(k) part of the plan. If you’re not sure, ask your human resources department or plan administrator.

If your plan doesn’t allow in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401(k), then your opportunity to do the mega backdoor Roth is delayed until you leave your job. If that’s the case, you might want to reconsider this strategy.

Ideally, executing the mega backdoor Roth means throwing all of your after-tax savings into your after-tax bucket (once you’ve maxed out your regular 401(k) contribution limit). Then, you’re almost immediately getting your money out of that bucket and into either a Roth IRA or Roth 401(k) before it starts accruing investment earnings. That’s because if you leave your after-tax contributions in the after-tax bucket, which is a tax-deferred bucket, you’re going to eventually owe tax on those earnings. But once that money is in a Roth, it grows tax-free.

The point is to get as much money into the Roth as soon as possible to get as much tax-free growth as soon as possible. If your after-tax contributions accumulate investment earnings, the IRS has said it’s OK to split up that money by rolling your after-tax contributions into a Roth IRA and the investment earnings into a traditional IRA^[0]

3. You’ve got money left over for savings

A mega backdoor Roth IRA is a sweet way to get a lot of money into a Roth IRA, but it’s really for people who have a lot of money to put aside for savings. In general, it makes sense to first max out a regular or Roth 401(k) and a Roth IRA if you’re eligible. Here’s why:

• With a regular 401(k), you get an upfront tax break — your taxable income is reduced in the year you make your contributions, and you defer taxes on your investment earnings until you make a withdrawal.

• If you opt for the Roth 401(k), you contribute money that you’ve already paid taxes on. Your tax break is delayed, but your money grows tax-free and you get tax-free income in retirement.

• If you’re below the Roth IRA income limits, it’s easier to simply contribute directly than to jump through all the hoops required for the mega backdoor Roth IRA. If you’re above the Roth IRA income limits, then a backdoor Roth — the non-mega kind — is also an option.

If you’ve maxed out your 401(k) and a Roth IRA and you still have money to save this year, that’s when you’d consider a mega backdoor Roth.

Note: On rare occasions, a 401(k) plan may be forced to return your contribution to you. This generally happens only if you're among the highest-paid workers at your company. That's because IRS nondiscrimination tests require that retirement plans don't offer a substantially bigger benefit to high-income employees than rank-and-file workers. If the highest-paid workers are saving at a much higher rate than other workers, the plan may be forced to return some of that money.

Bottom line

A mega backdoor Roth allows high-earning investors — who otherwise couldn't put money in a Roth account because of income restrictions — to move money from a 401(k) plan to a Roth IRA or Roth 401(k) plan. Although it sounds simple, it’s an involved process that could come with a tax bill, so consulting with a financial advisor or tax professional may be helpful.

The mega backdoor Roth is just one of a few ways to take advantage of the Roth treatment and earn tax-free withdrawals. Here are some others: