After-Tax 401(k) Contributions
Voluntary non-Roth, non-deductible contributions to a 401(k) above the regular deferral limit, up to the overall Section 415(c) cap, that form the basis of the Mega Backdoor Roth strategy.
Detailed Explanation
After-tax 401(k) contributions are a third contribution type, distinct from pre-tax and Roth deferrals. Pre-tax and Roth elective deferrals both count against the Section 402(g) limit ($24,500 for 2026), but voluntary after-tax contributions do not; they count only against the overall Section 415(c) annual-additions limit ($72,000 for 2026). The space available equals $72,000 minus elective deferrals minus employer contributions. The contributions go in with money that has already been taxed, and any earnings on them grow tax-deferred. Left alone, after-tax money is unattractive because the earnings are eventually taxed as ordinary income on withdrawal. Their value comes from converting them to Roth, either through an in-plan Roth conversion or an in-service distribution to a Roth IRA under the allocation rules of IRS Notice 2014-54. That conversion is the Mega Backdoor Roth. Two plan features are required: the plan must permit after-tax contributions, and it must permit either in-plan Roth conversions or in-service distributions. After-tax contributions are also subject to ACP nondiscrimination testing, which can limit highly compensated employees even in a safe-harbor plan.
Key Points
- A third contribution type, separate from pre-tax and Roth deferrals.
- Do not count against the $24,500 deferral limit, only against the $72,000 Section 415(c) cap (2026).
- Available room equals $72,000 minus deferrals minus employer contributions.
- Earnings grow tax-deferred but are taxable on withdrawal unless converted to Roth.
- Converting them to Roth is the Mega Backdoor Roth; subject to ACP testing that can limit highly compensated employees.
Practical Example
An employee defers the full $24,500 and receives a $12,250 employer match, using $36,750 of the $72,000 limit. If her plan allows it, she can add up to $35,250 of after-tax contributions and convert them to Roth, far beyond what a $7,500 Roth IRA would permit.
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Learn about Tax Planning & StrategyRelated Terms
Mega Backdoor Roth
A strategy using after-tax (non-Roth) 401(k) contributions converted to a Roth account, allowing high earners to move significantly more into Roth than the standard $24,500 deferral limit.
Backdoor Roth IRA
A two-step strategy of contributing to a non-deductible traditional IRA and converting it to Roth, used by high-income earners who exceed direct Roth IRA contribution limits.
Roth Conversion
The process of moving funds from a traditional pre-tax retirement account (IRA, 401(k)) to a Roth account, paying ordinary income tax on the converted amount in exchange for tax-free future growth and withdrawals.
Solo 401(k)
A retirement plan for self-employed individuals and small business owners with no full-time employees, allowing both employee deferral and employer profit-sharing contributions.
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