Mega Backdoor Roth: A Tax-Friendly Retirement Strategy for Serious Savers

Contributing to a traditional 401(k) or IRA can help reduce your current tax bill, but you may run into some drawbacks in retirement. Withdrawals are taxed as ordinary income, and you must take required minimum distributions (RMDs) once you reach age 73 (age 75, for those born in 1960 or later). On the other hand, qualified Roth distributions are tax-free after age 59½, as long as you’ve held the account for at least five years.* Plus, Roth accounts are not subject to RMDs during your lifetime.

Roth IRA contribution limits are somewhat low ($7,500 in 2026, or $8,600 if you are age 50 or older), and you can’t contribute at all if your income exceeds certain annual limits ($168,000 for single filers and $252,000 for joint filers in 2026). You can make larger contributions to a Roth 401(k) regardless of your income.

If you have a high income and want to maximize the amount you can place into Roth accounts, check whether your employer’s 401(k) plan allows both after-tax contributions and in-service withdrawals or conversions. If it does, you may be able to make additional after-tax contributions to your 401(k) beyond the standard contribution limits, and then convert those funds to a Roth IRA or Roth 401(k). This strategy, known as the mega backdoor Roth, can significantly increase your Roth savings, but it is only available under specific plan rules and circumstances.

Saving to the max

The employee contribution limit for 401(k), 403(b), and governmental 457(b) plans is $24,500 in 2026. Catch-up contributions allow additional savings:

• Ages 50–59 and 64+: up to $8,000, for a total of $32,500
• Ages 60–63: a larger “super catch-up” of $11,250, for a total of $35,750

Catch-up eligibility is based on your age at the end of the year. For example, if you turn 60 at any point in 2026, you are eligible for the full $11,250 catch-up (but not if you turn 64 during the year). Starting in 2026, there is an important change: Employees with prior-year W-2 wages exceeding $150,000 must make all catch-up contributions on a Roth (after-tax) basis, if their plan offers a Roth option.

The total annual addition limit (not including catch-up contributions) is $72,000 in 2026, or 100% of compensation, whichever is less. This includes:

• Employee salary deferrals (pre-tax + Roth)
• Employer contributions
• Employee after-tax contributions

In many plans, you must first max out your standard salary deferrals before making after-tax contributions. For example, if you are age 60 and contribute the maximum $35,750 (including catch-up), and your employer contributes $18,000, you could potentially add $29,500 in after-tax contributions, bringing your total contributions to $83,250.

Fast track your Roth conversion

Your after-tax contributions are not taxed again upon withdrawal, but any earnings generated on those contributions are taxable as ordinary income when converted or distributed.

If your plan permits in-service withdrawals or in-plan conversions, it may be advantageous to transfer your after-tax contributions to a Roth account as soon as possible. Doing so can help minimize investment growth inside the after-tax portion of the account, thereby reducing the amount of earnings that could become taxable during conversion.

Bear in mind that 401(k) distributions are generally subject to the pro-rata rule, which requires any withdrawal or conversion to include proportional amounts of pre-tax and after-tax funds if both exist in the account.

For example, if your 401(k) balance is $100,000—comprised of $80,000 in pre-tax funds and $20,000 in after-tax funds—any distribution must be treated as 80% pre-tax and 20% after-tax. As a result, a portion of the distribution will be taxable.

In some cases, you may be able to avoid triggering taxes on the after-tax portion by separating the funds: rolling the pre-tax balance into a traditional IRA while converting the after-tax portion to a Roth account.

If your employer maintains separate accounting for pre-tax and after-tax contributions (including associated earnings), you may be able to withdraw or convert the entire after-tax balance—including any taxable earnings—while leaving the pre-tax balance in the 401(k). In this situation, the tax liability may be minimal if the conversion is completed soon after the after-tax contribution is made, or if the earnings portion is rolled into a traditional IRA.

Plans that allow after-tax contributions are relatively uncommon, particularly at smaller employers. If your plan offers after-tax contributions but does not allow in-service withdrawals or conversions, the strategy may still be useful if you anticipate retiring or leaving your employer in the near future.

*Distributions from traditional or Roth accounts taken prior to age 59½ may be subject to a 10% federal tax penalty, with certain exceptions, as well as ordinary income tax.