Mega Backdoor Roth Explained: Eligibility, Contribution Limits, and Tax Benefits

A mega backdoor Roth is a special strategy for saving additional tax-free retirement dollars every year. It allows individuals to contribute funds towards a Roth individual retirement account (IRA) and/or Roth 401(k) even when they are ineligible to contribute due to their income. Although this strategy can be complex, it could allow the individual to contribute an extra $46,500 in 2025.

A Roth account is a retirement account that requires after-tax contributions to allow for tax-free growth and distributions. Under the standard rules, individuals can only make a direct contribution to a Roth account if their income is under the indexed income levels and their contribution is subject to an annual limitation. Unlike IRAs, Roths do not require minimum distributions upon the IRS retirement age.

This strategy is only useful for individuals who contribute the maximum amount to a 401(k) and IRA, or those whose contribution is limited or disallowed due to their income level. Eligible individuals are (1) those enrolled in an employer-sponsored traditional 401(k) plan that allows after-tax contributions and in-service withdrawals or Roth rollovers, and (2) self-employed individuals with a solo 401(k) plan that allows after-tax contributions and in-service withdrawals. Roth IRA contributions are fully disallowed for single taxpayers who earn more than $165,000 and married taxpayers who file jointly and earn more than $246,000 in 2025. A mega backdoor Roth allows individuals to roll the company’s after-tax contributions into the Roth segment of the plan or roll them out of the plan into a Roth IRA. Suppose the company does offer an in-plan Roth conversion. In that case, the individual must maximize the after-tax contributions to a 401(k) or other workplace retirement plan and convert to either a Roth IRA or Roth 401(k).

The first step of this strategy is to make the 2025 maximum pre-tax contributions of $23,500 or $31,000 for those aged 50 and over. Special note: for 2025, individuals between the ages of 60 and 63 are eligible for an 11,250 catch-up contribution. Then, individuals can make additional after-tax contributions up to the 2025 limit set at $70,000 or $77,500 for those aged 50 and over. The last step is to roll the after-tax contributions into a Roth IRA or convert them into a Roth 401(k), which will allow tax-free growth and can be withdrawn tax-free in retirement.

The individual must verify if their plan meets the requirements. In the details of their plan, the individual can look for two important key features in the Summary Plan Description, which shows if the after-tax contributions are allowed and if in-plan Roth conversions are available.

Even if your company has the requirements needed for a mega backdoor Roth contribution, they may not allow these contributions. There are still other options available to set aside funds for retirement. The additional options to save for retirement include regular backdoor Roth IRA conversion and/or contributing to a Roth 401(k)

Although this strategy allows an individual to save tax-free dollars every year, due to its complexity, consulting with an experienced tax adviser is recommended. If you’re considering a mega backdoor Roth strategy, please contact Withum’s Founders and Tech Executive Services Team. We can help you navigate the rules and make the most of your retirement savings opportunities.

Author: Nicole Angiuoli, CPA | [email protected]