The Mega Backdoor Roth for High-Income Earners
For high earners who want to save more for retirement in tax-advantaged accounts, the Mega Backdoor Roth 401(k) can be a powerful way to increase savings. This strategy lets you contribute beyond the standard 401(k) limits by making after-tax contributions and converting those funds to Roth savings. The result is more money growing tax free and available tax free in retirement, an opportunity worth considering if you have already maxed out your regular 401(k) contributions.
Who Should Consider a Mega Backdoor Roth?
The Mega Backdoor Roth is not for everyone. It works best for people with higher incomes who already contribute the maximum to their regular pre-tax 401(k) at work. The regular contribution limits for 401(k) plans in 2025 are $23,500 for people younger than 50 , and $31,000 for people 50 and older. With the Mega Backdoor Roth 401(k) strategy, you can save up to an additional $46,500 (regardless of your age), allowing your total yearly contributions to reach $70,000 and $77,500, respectively.
One note: If your company matches your 401(k) contribution, the match amount is subtracted from the total you can contribute. The limits of $70,000 and $77,500 are the maximum amount that both you and your company can contribute combined.
What Are Contribution Limits and Key Numbers?
The Mega Backdoor Roth 401(k) strategy is powerful because your additional contributions go into your tax-free savings bucket. When you take the money out later in retirement, you won’t owe any tax on the amount you contributed or on its growth. That’s in comparison to regular pre-tax 401(k) contributions, where you contribute money before tax. With these accounts, there is no tax on the money while it’s growing, but you pay tax on the money (including growth) when you withdraw funds in retirement.
A Mega Backdoor Roth can help you surpass limits on the amount you can contribute to a Roth IRA. The maximum Roth IRA contribution amount for 2025 is $7,000 (or $8,000 if you’re age 50 or older). That amount drops if your income is too high; in fact, many people can’t make Roth IRA contributions because of income limits.
How Does a Mega Backdoor Roth Work?
By now you probably have a sense of whether this strategy could be useful. If it is, there’s one more thing to consider about how much additional to direct to a Roth 401(k) account, which you may not be able to access tax-free for many years: liquidity. You need to consider how much money you have in taxable brokerage accounts that you can access anytime versus pre-tax and Roth retirement accounts that you can’t access without penalty until age 59½ in most cases. It’s important to have at least some money in account types that don’t limit your ability to withdraw funds in case of emergencies or to fund big goals or projects, like buying or remodeling a home. Just keep this in mind.
Now let’s talk about how a Mega Backdoor Roth works. Here’s a simplified rundown:
- You max out your regular (usually pre-tax) 401(k) contributions.
- You contribute up to an additional $46,500 to your 401(k) plan as after-tax contributions. (You’ve already paid income tax on these amounts).
- You convert your after-tax contributions to Roth 401(k) inside of the 401(k) plan (an in-plan rollover or conversion) or withdraw them to an external Roth IRA account (an in-service distribution).
What Are Plan Requirements?
To implement the Mega Backdoor Roth strategy, your company’s 401(k) plan must have certain features: it must allow you to make after-tax contributions and in-plan conversions or in-service withdrawals. Not all 401(k) plans offer these features, and if your company’s plan doesn’t, you cannot execute the Mega Backdoor Roth strategy. Check your 401(k) plan website or ask your employee benefits specialist whether your company’s 401(k) plan has the required features.
Many tech firms offer these features needed for a Mega Backdoor Roth strategy to their 401(k) plans due to strong demand. Employees at leading tech companies, such as Apple, Cisco, Google, Intel, Meta, Microsoft, PayPal, and ServiceNow often use strategy.
It’s important to set up automatic in-plan Roth conversions, if it’s available in your 401(k) plan. Some 401(k) platforms allow you to configure an automatic conversion of your after-tax contribution to Roth 401(k) every time you make a contribution, for example, each pay period. If an automatic in-plan Roth conversion isn’t available, you may have to manually convert your after-tax contributions to Roth 401(k) each pay period. That can be an incredible hassle and could lead you to not convert immediately each pay period. And if you don’t convert immediately, any growth on your after-tax contribution will be taxed as ordinary income when you finally do convert. That’s why the automatic in-plan conversion feature is so useful.
While it can be tricky to initially set up the strategy in your 401(k) plan, there isn’t much standardization in terminology or set-up processes among 401(k) platform providers, and the documentation and help can be scarce, just know that it may be beneficial for some individuals.
What Are the Next Steps?
If you’re already maxing out your 401(k) and still have extra cash to save, check whether your company’s 401(k) plan offers the Mega Backdoor Roth features. If it does, and fits your situation, consider using it to boost your tax-free savings.
Savant Wealth Management provides comprehensive wealth management services including financial planning, equity compensation planning, investment management, tax planning, and others, on a fee-only basis and as a fiduciary, acting in clients’ best interests. If you’d like help understanding Mega Backdoor Roth and whether it makes sense for you, schedule a complimentary consultation.
Bruce R. Barton
Managing Partner / Financial Advisor
CFP®, CFA®, MBA