What is the Mega Backdoor Roth Strategy, Anyway?
By Jodie Norquist, CIP, CHSP
For retirement savers, Roth accounts within employer plans have become a popular tool, especially for high-income earners who are ineligible for Roth IRA contributions, and who are seeking tax-free growth and greater flexibility in retirement. While most financial organizations are familiar with Roth IRA conversions, the mega backdoor Roth strategy in certain employer plans has emerged as a technique for supercharging tax-free retirement savings when plan design and nondiscrimination testing allows.
What Is the Mega Backdoor Roth?
The term “mega backdoor Roth” isn’t an IRS designation. It’s a strategy that enables eligible participants in 401(k) and ERISA 403(b) plans to contribute significantly more to Roth retirement accounts than standard Roth limits allow. Instead of being constrained by Roth IRA income thresholds or employer plan elective deferral limits, participants—most commonly high-income earners— can use nondeductible (after-tax) contributions within their retirement plan to accelerate Roth savings.
It works like this:
Plan provisions must allow nondeductible contributions beyond regular elective deferrals and in-plan Roth rollovers or—if not the latter— in-service distributions of nondeductible assets that can be rolled over to a Roth IRA. Employers can amend their plans to add these provisions if needed.
A participant defers on a Roth basis to a retirement plan, typically enough to maximize an employer matching contribution, potentially up to the statutory contribution limit under IRC Sec. 402(g), which for 2026 is $24,500 plus $8,000 (if age 50 or older) or $11,250 (if age 60-63) in catch-up contributions.
The participant receives any employer matching or profit sharing contributions. Historically such contributions have been pretax in nature, but—as now permitted by SECURE 2.0 legislation—such employer contributions can be made as Roth amounts, and are taxable in the year received.
The participant makes nondeductible contributions above the aggregate salary deferrals and employer contributions, up to the IRC Sec. 415 annual additions limit. This limit is $72,000 for 2026, which is the combination of all employer and employee contributions, and increases by the amount of any eligible catch-up contributions.
The participant then does an in-plan Roth rollover of the nondeductible employee contributions. Any earnings on such amounts between the time of their contribution and executing the in-plan Roth rollover are taxable. If wishing to maximize the plan’s Roth feature, he may move other plan assets—employer contributions, or previously-accumulated salary deferrals— as in-plan Roth rollovers to his Roth account. Any such amounts that are pretax would be taxable in the year of the in-plan Roth rollover. A rollover to his Roth IRA would also be an option if he has a distributable event. (It is common for nondeductible employee contributions to be distributable at any time.) As is the case for in-plan rollovers, any pretax amount(s) would be taxed in the year of rollover to a Roth IRA.
Once certain requirements are met, any future growth may be taken out tax-free as qualified distributions.
Plan Design and Compliance Considerations
One major issue that employers face when participants use the mega Roth strategy is passing compliance testing. Because this strategy appeals mostly to highly compensated employees (HCEs), if non-highly compensated employees (non-HCEs) don’t make nondeductible contributions, the plan may fail the actual contribution percentage (ACP) nondiscrimination test. For this reason, the strategy often works better for plans without non-HCEs, such as Individual(k) plans, or partner-only plans, including plans of certain professional organizations.
Also, safe harbor plans that allow participants to make nondeductible contributions lose some of the protections normally provided by safe harbor rules. Nondeductible employee contributions make employer matching contribution testing necessary, and cause the plan to lose its automatic top-heavy testing exemption, primary reasons plan administrators choose safe harbor plans in the first place.
For employers that have employees who are non-HCEs, these are important design and operational considerations.
Why It Matters for High-Income Clients
High earners often face multiple retirement savings challenges.
They max out regular 401(k) or 403(b) deferrals quickly.
To make a regular Roth IRA contribution for 2026, their modified adjusted gross income must be below $168,000 (for single filers) or $252,000 (for married couples filing jointly).
Traditional backdoor Roth IRA contribution/conversions may trigger pro rata taxation for those with accumulated pretax IRA assets, which can be complicated. If an IRA owner has both pretax and after-tax IRA assets, a portion of the conversion will be taxable: an IRA owner can’t convert only after-tax IRA assets if they have pretax assets in any of their Traditional or SIMPLE IRAs. IRS Publication 590-B, Distributions from Individual Retirement Arrangements (IRAs), contains a pro rata calculation that IRA owners can use to determine the taxable portion of the conversion.
The mega backdoor Roth strategy helps solve all three challenges by letting clients convert significantly more after-tax retirement dollars directly into Roth savings. So not only will the earnings grow tax and penalty free, but Roth assets are not subject to required minimum distributions (RMDs).
Some believe this strategy provides value because the taxes they pay now may be less than the taxes they will pay when they retire. Clients who convert pretax assets to Roth now, can have tax-free assets during retirement.
Integration With Other Roth Strategies
The mega backdoor Roth isn’t the only Roth-focused strategy, but it can be one of the most effective for high-income clients who combine it with other strategies, including the following.
Traditional Roth Conversions: Converting Traditional or SIMPLE IRA assets to Roth IRAs when income is lower or tax planning opportunities arise.
Backdoor Roth IRAs: A technique for those who exceed Roth IRA income limits but want to fund Roth accounts with nondeductible Traditional IRA contributions followed by a Roth conversion.
Rollover Strategies: Rolling over plan balances after a qualifying event (e.g., termination, age 59½) into Roth IRAs. (As noted above, nondeductible employee contributions are commonly available for rollover at any time, without a special triggering event.)
It’s important for clients to remember that rolling over or converting large pretax balances into a Roth account can trigger a substantial tax bill in one year. Many advisors recommend staggering these transactions over multiple years in order to help clients manage tax brackets.
Clients That Will Benefit the Most
The mega backdoor Roth is not for every saver, but it can be effective for
high-income professionals and executives who already maximize standard contributions;
clients with excess cash flow who want to accelerate tax-free retirement savings; and
those without significant pretax IRA balances, where pro rata taxation on conversions are minimized.
For these clients, the strategy can meaningfully increase the portion of retirement assets that grow and are withdrawn tax-free. But it’s important to note for all these transactions, any pretax assets that are moved to Roth IRAs are subject to income tax, so savers should discuss these options with a competent tax advisor.
