There’s been a lot of talk lately about the massive backdoor Roth IRA. For a long time, this was an unspoken secret used by retirement planners. However, the IRS Directive issued Which specifically addressed both backdoor Roth IRA conversions and so-called Mega Backdoor Roth IRA. As a result, it gained more popularity and attention.
So what is a Mega Backdoor Roth IRA? The Mega Backdoor Roth IRA allows you to contribute an additional $47,500 to a Roth IRA by taking advantage of the fact that some employer 401k plans allow after-tax contributions up to the current limit of $72,000.
Wait what? I thought it would limit Ruth’s contribution to… 2026 He is $7500 (And $8,600 if you’re over 50.) How can you contribute more than 6 times this amount?
Let’s dig a little deeper into the background, then show how the process works.
First: Why Roth vs. Traditional vs. 401k
I think it’s important to first have a discussion about why this is important. Because, for some people, it doesn’t matter.
From this article no Applies to:
- If you are no Maximize your 401k contributions and current IRA contributions (this means putting $24,500 in advance tax on your 401k, and $7,500 in your IRA)
- If you don’t meet the income restrictions for a deductible IRA (if you can deduct your IRA contributions, do so)
- If your employer doesn’t make after-tax 401k contributions (you may still want to read this and be informed, but it won’t help you and I’m sorry your employer sucks)
Why bother with Roth vs. Traditional IRA vs. 401k
Without going on a long conversation here, we have a great article on when to contribute to a Roth IRA versus a traditional IRA. It’s a long story, but it goes into detail about the tax consequences of each. I highly recommend using this article as a basis for this.
But honestly, tax diversification is one of the biggest reasons to consider this strategy. It can be beneficial to be able to tap into taxable and tax-exempt accounts in retirement. It *may* also be worth paying any potential taxes today to enjoy a tax-free retirement later. It really depends on your tax situation, but if you’re already reading this far, you probably already know that.
Background: A regular backdoor Roth IRA conversion
A Backdoor Roth IRA conversion is an indirect way to contribute to a Roth IRA when you are not eligible to contribute directly due to high income.
Remember, in order to fully contribute to a Roth IRA, you must meet the following income limits (as of 2026):
Roth IRA contribution income limits for 2026 | ||
|---|---|---|
If you exceed the income limits and earn income, you can still contribute to a nondeductible traditional IRA. Backdoor Roth IRA uses this tactic to convert a non-deductible traditional IRA contribution to a Roth account.
Here’s briefly how it works in three steps.
Step 1 – Make sure you don’t have any other pre-tax IRA accounts
To avoid many potential complications and problems, you should eliminate any Traditional IRAs, SEP IRAs, or SIMPLE IRAs, unless you are looking to convert them to Roth IRAs. You can get rid of it by rolling it over to an employer-sponsored plan, such as a 401k, 403, or 457. This is called a reverse IRA to 401k. You will then take advantage of this employer-sponsored plan for a Mega Backdoor Roth IRA.
Remember, you can also only transfer pre-tax funds, so any previous non-deductible contributions aren’t eligible.
Step 2 – Make a non-deductible IRA contribution
Once you’ve eliminated all of your traditional IRAs, it’s time to actually start contributing to your Backdoor Roth IRA. This is the easy part.
Simply open a traditional IRA and a Roth IRA at the same company (you may already have this). Next, contribute $7,500 (maximum in 2026) as a nondeductible contribution to your traditional IRA.
Step 3 – Convert a traditional IRA to a Roth IRA
This step is also very easy, but there are some caveats. First, you must wait at least one day after the funds clear in your traditional IRA before transferring it. The IRA doesn’t have any guidelines on this, but it’s a good idea to show a clear step-by-step process on how to convert.
For many online brokerages, this makes this step very easy, but it can be intimidating. At most companies, you simply roll the balance from a traditional IRA to a Roth IRA. That’s it. Others may have you sign a form. Almost everyone will warn you about the tax implications of this, which is the “scary” part of the deal.
We like Charles Schwab as our broker because they offer no-fee IRAs and commission-free trades. Open a Schwab account here for free.
We’re not tax experts, but here’s a great guide on that How to Report Taxes on Your Backdoor Roth IRA.
How the Mega Backdoor Roth IRA Works
Ok, now that you have a refresher on the Backdoor Roth IRA, how does the Mega Backdoor Roth IRA work? Well, it takes advantage of the fact that after-tax contributions to a 401k plan are treated just like a traditional IRA in the Backdoor Roth example above.
It’s a different process, but similar. But it does require that you have an employer 401k that allows after-tax contributions. We’re not talking about Roth contributions, but after-tax contributions.
A note about after-tax 401k contributions Remember, the IRS limit on total 401k contributions is $72,000 in 2026. This means you can contribute $24,500 before tax, and your employer usually contributes something. Some 401k plans allow employees to contribute the remaining amount in after-tax contributions.
For example, let’s say your employer matches $6,000 in your 401k plan. You can contribute $24,500 before tax, and your employer puts in $6,000. This leaves you with $41,500 that you can contribute after tax if your employer allows it.
Or, if you have a solo 401k, you can set up your plan to allow this! This is huge for small business owners.
Your 401k plan must meet specific criteria to do a Mega Backdoor Roth IRA
In order to make a Mega Backdoor Roth IRA, your 401k plan needs to offer the following:
- After-tax contributions exceed the pre-tax contribution limit of $24,500
- In service distributions or withdrawals without hardship
If your 401k plan doesn’t offer no-hardship withdrawals, you may still be able to accomplish the same thing if you’re leaving your company soon.
There are also thoughts that even If you are unable to make withdrawals during the serviceit may still be very useful.
You can then max out your 401k with after-tax contributions up to the contribution limit each year. You can then withdraw that money to a traditional IRA, doing the same process as a Backdoor Roth IRA.
Unfortunately, a company that allows after-tax contributions and service distributions is rare. Check with your benefits manager before proceeding.
Related to: Understanding After-Tax vs. Roth Contributions to a 401k
Step-by-step process for performing a Mega Backdoor Roth IRA conversion
Time required: 1 hour.
The process of doing a Mega Backdoor Roth IRA conversion is very similar to a regular IRA, just replace your after-tax 401k with a traditional IRA.
Remember that your plan must be qualified and you must be very careful to do it right.
- Maximize your after-tax 401k contributions
The first additional step to a Mega Backdoor Roth IRA is that you need to know how much to increase your after-tax 401k contributions.
This means understanding your employer’s plan, and then making the additional contributions. This can be a challenge because many plans require you to set a percentage of your salary for a specific amount. You also want to make sure these contributions are in place After taxnot Roth 401k contributions.
- Withdraw the after-tax portion to a Roth IRA
Once you reach your maximum after-tax contribution, you can withdraw that portion to a Roth IRA if your employer allows non-hardship withdrawals during service.
Otherwise, you need to wait until termination, and you can convert the after-tax portion to a Roth IRA. The downside to waiting is that any growth from after-tax contributions becomes part of the pre-tax balance (unlike Roth dollars).
Note: If you have any gains on the after-tax portion, that amount is taxable on the conversion (since it was tax-free growth in your 401k). However, if you are transferring regularly, the profits should be minimal.
If you have excess earnings, you should convert contributions to a Roth IRA and earnings to a traditional IRA. Keep accurate records.
Alternative approach: Huge Step 2 would be an “alternative” if the 401k allowed in-plan Roth rollovers (the IRS calls them in-plan rollovers to a designated Roth account). With this, you simply click a button with your 401k provider and roll over the after-tax portion to a Roth account.
This works great for solo 401k owners
Although many companies do not allow in-service distributions and after-tax contributions, for solo business owners with a solo 401k, this can be a great option for maximizing your Roth funds.
With a solo 401k plan, you can only contribute about 25% of your pre-tax income to your 401k plan. For many business owners, this may not reach the maximum of $72,000 (in 2026). However, since you are the custodian of your own plan, you can be sure that your plan allows for after-tax contributions and in-service withdrawals.
So, let’s say you can only contribute:
- $24,500 in optional contributions
- $24,500 in profit sharing contributions
This just adds up to $49,000 in contributions. You could theoretically contribute another $23,000 after tax contributions to your solo 401k, which you can then roll over into a massive Roth IRA. This is huge!
The trick here is to create a plan that allows for this. You can’t implement these plans at any of the “free” solo 401k providers.
Take a look at the following where they should allow this if you request it to be created as part of your plan:
conclusion
The Mega Backdoor Roth IRA is another potential tool for maximum tax savings if you have more bandwidth to save. This strategy is really for people who are maximizing their savings in other ways first: 401k, IRA, HSAs, 529s.
It also works very well for people looking to make early withdrawals from their IRA or 401k.
If you still need or want more tax-sheltered savings, this is likely a great strategy if your employer allows it.
