Mega Backdoor Roth: Contribute Up to $70,000+ to Roth Accounts

The mega backdoor Roth is an advanced strategy that lets you contribute $40,000+ to Roth accounts annually—far beyond the standard $7,000 IRA or $23,500 401(k) limits.

Understanding Contribution Limits

2024 401(k) Contribution Limits

The gap between your contributions and the total limit is where mega backdoor Roth lives.

What Is the Mega Backdoor Roth?

Here's the flow:

1. Max out your regular 401(k) contributions ($23,500)
2. Make after-tax (not Roth) contributions up to the $69,000 limit
3. Convert those after-tax contributions to Roth (in-plan or rollover to Roth IRA)

Example:

• Employee contributions: $23,500
• Employer match: $6,000
• After-tax contributions: $39,500
• Total: $69,000

You've now gotten $39,500 into Roth status beyond normal limits.

Requirements for Mega Backdoor Roth

Your 401(k) plan must allow:

1. After-tax contributions (different from Roth contributions)
2. In-service distributions OR in-plan Roth conversions

After-Tax vs. Roth Contributions

After-tax contributions sit in a tax limbo—you've already paid tax on them, but earnings are taxable. Converting to Roth solves this.

The Conversion Process

Option 1: In-Plan Roth Conversion

Your after-tax money converts to Roth 401(k) within the same plan.

Pros: Stays in 401(k), may have good fund options Cons: Subject to 401(k) rules, less flexibility

Option 2: In-Service Withdrawal to Roth IRA

Your after-tax money rolls out to your Roth IRA.

Pros: More investment options, IRA flexibility Cons: Requires separate IRA, more paperwork

The Key: Convert QUICKLY

If your after-tax contributions earn money before conversion, those earnings are taxable. Many plans allow automatic conversion.

Step-by-Step Setup

Step 1: Verify Plan Eligibility

Contact your 401(k) administrator:

• "Does the plan allow after-tax contributions?"
• "Can I do in-plan Roth conversions?"
• "Are in-service withdrawals allowed?"

Step 2: Calculate Your Contribution Room

Total limit: $69,000 Minus: Your pre-tax/Roth contributions Minus: Employer match Equals: After-tax contribution room

Step 3: Set Up Contributions

Elect after-tax contributions (separate from Roth election)

Step 4: Set Up Conversion

• In-plan: May be automatic or require periodic action
• Rollover: Complete distribution form to Roth IRA

Step 5: Track and Document

Keep records of all after-tax contributions and conversions for tax purposes.

Tax Reporting

After-tax contributions that are converted:

• No additional tax on the contribution (already taxed)
• Any earnings converted are taxable
• Report on Form 8606

When Mega Backdoor Roth Makes Sense

Ideal candidates:

• High income (maxing out regular 401(k))
• Plan allows required features
• Want more Roth money for tax-free growth
• Long time horizon to benefit from Roth growth

Less ideal if:

• Not maxing regular 401(k) yet
• Plan doesn't allow it
• Need the money soon
• Already have huge Roth balances

Common Mistakes to Avoid

1. Not converting quickly — Earnings become taxable
2. Confusing after-tax with Roth — They're different elections
3. Exceeding limits — Total can't exceed $69,000 from all sources
4. Missing pro-rata rules — If rolling to IRA, know the rules
5. Poor record-keeping — Document everything

The Bottom Line

The mega backdoor Roth can add $40,000+ annually to your Roth accounts—potentially hundreds of thousands in tax-free growth over a career. But it requires the right plan and careful execution.