Mega Backdoor Roth

Detailed Explanation

The Mega Backdoor Roth is a 401(k)-based strategy that lets high earners contribute well above the standard $24,500 (2026) employee deferral cap. The total annual additions limit under IRC §415(c) is $72,000 for 2026 (catch-up contributions of $8,000 for ages 50 to 59 and 64+, or $11,250 for ages 60 to 63, stack on top), combining: employee elective deferral ($24,500), employer match or profit-share, and after-tax non-Roth contributions (the "mega" part). The mechanism works in four steps: (1) the employee makes the maximum elective deferral ($24,500 Roth or pre-tax); (2) the employer contributes match or profit-sharing per the plan; (3) the employee makes after-tax non-Roth contributions to fill the remaining headroom up to $72,000 total; (4) either via in-plan Roth conversion (preferred when allowed) or in-service distribution to a Roth IRA under IRS Notice 2014-54, the after-tax contributions are moved into Roth status. The contribution itself is non-deductible (already taxed), and converting before earnings accumulate keeps the conversion essentially tax-free. Three preconditions are required: the 401(k) plan must permit after-tax non-Roth contributions (industry surveys put this near one in five plans); the plan must permit either in-plan Roth conversions OR in-service distributions of after-tax money; and the total must stay within §415(c). Many large employer plans support this; many smaller plans do not. Self-employed Solo 401(k) plans CAN be set up to support a Mega Backdoor Roth, but only with custom plan documents (most off-the-shelf brokerage Solo 401(k)s do not). The strategy can shelter roughly $30,000 to $47,500 of EXTRA Roth annually for high earners on top of the regular contribution limits.