Key takeaways

  1. The Mega Backdoor Roth 401(k) lets you contribute up to $69,000 annually by making after-tax 401(k) contributions and converting them to a Roth, far exceeding standard limits.
  2. Funds in a Roth 401(k) grow tax-free, and qualified withdrawals are also tax-free in retirement, offering significant long-term tax benefits.
  3. This strategy has risks, including plan restrictions, unexpected tax bills, and changes in tax laws or employer plans. Consult a financial planner before proceeding.

A Mega Backdoor Roth 401(k) is a strategy that can boost your retirement contribution up to $69,000 a year—all through a “backdoor” approach that works around the restrictions of Roth accounts.

Instead of contributing directly to a Roth, you can contribute to your 401(k) and then convert it to a Roth 401(k), regardless of your MAGI (Modified Adjusted Gross Income). And you can stash away far more savings than with a Roth alone.

How a Mega Backdoor Roth 401(k) works.

Think of it as a secret passage to a larger retirement room. As of 2024, the annual contribution limit for a regular 401(k) is $23,000 for individuals under 50 and $30,500 for those 50 and older. A Mega Backdoor Roth lets you contribute a lot more—up to an additional $46,000 in after-tax dollars. (Note that figure gets lowered by other contributions, like employer matching.)

On a high level, the strategy works like this:

  • Step 1: Make after-tax contributions through direct payroll contributions to your employer's 401(k) retirement plan.
  • Step 2: Convert all your after-tax 401(k) balance to Roth within your plan.
  • Step 3: The converted amount grows tax-free, and you can withdraw it tax-free in retirement.

Simple as all this seems, creating a Mega Backdoor Roth is complicated. It has long-term financial implications, and in the short run it can hit you with an unexpected tax bill. You’ll definitely want to talk with your planner or tax pro before doing it yourself.

What are the upsides of a Mega Backdoor Roth 401(k)?

Possible benefits include:

Higher contribution limits: You can skip past the standard contribution limits of a 401(k) and drop far more money into your retirement savings.

  • Tax-free growth: Your investments within a Roth account grow tax-free, meaning you won't pay taxes while the account is growing.
  • Tax-free withdrawals: Qualified withdrawals from a Roth 401(k) are tax-free, providing a steady income stream during retirement.

Things you’ll want to consider …

While the Mega Backdoor Roth offers some nice benefits, you’ll need to keep some important details in mind:

  • Plan restrictions: Your employer's retirement plan needs to allow additional after-tax contributions and a way to move those funds into a Roth. Not all plans offer these options.
  • Shared contribution limit: What you can contribute is lowered by other 401(k) contributions, including your employer match and contributions to any other 401(k) plans you have.
  • Market volatility: Like any investment, the value of your Mega Backdoor Roth will rise and fall with the market.
  • Plan changes: Your employer may change the rules or benefits of your retirement plan, which might not make a Mega Backdoor Roth an option down the road.
  • Future tax laws: Similarly, there's always a risk of changes in tax laws that could change how a Mega Backdoor Roth works—or if it’s still available in years to come.

A Mega Backdoor Roth 401(k) can supercharge your retirement savings.

If your income level keeps you from contributing to a Roth IRA, the Mega Backdoor Roth 401(k) strategy offers you a workaround. And it can boost the amount of money you can put into it each year, and in a big way.

Of course, a Mega Backdoor Roth 401(k) has its pros and cons. There’s plenty to think about before jumping in. A talk with your planner and tax pro can help you see if it’s right for you.