Mega Backdoor Roth

Detailed Explanation

The Mega Backdoor Roth is a 401(k)-based strategy that lets high earners contribute well above the standard $24,000 (2026) employee deferral cap. The total annual contribution limit under IRC §415(c) is $70,000 for 2026 (plus $7,500 age 50+ catch-up), combining: employee elective deferral ($24,000), employer match/profit-share, and after-tax non-Roth contributions (the "mega" part). The mechanism works in four steps: (1) Employee makes maximum elective deferral ($24,000 Roth or pre-tax). (2) Employer contributes match or profit-sharing per the plan. (3) Employee makes after-tax non-Roth contributions to fill the remaining headroom up to $70,000 total. (4) Either via in-plan Roth conversion (preferred when allowed) or in-service distribution to a Roth IRA, the after-tax contributions are immediately moved into Roth status. The contribution itself is non-deductible (already taxed), and converting before earnings accumulate means the conversion is tax-free. Three preconditions are required: the 401(k) plan must permit after-tax non-Roth contributions (less than 50% of US plans support this); 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). Most large employer plans (Google, Meta, Microsoft) support this; many smaller plans do not. Self-employed Solo 401(k) plans CAN be set up to support Mega Backdoor Roth, but only with custom plan documents (most off-the-shelf brokerage Solo 401(k)s do not). The strategy can shelter up to $30,000 to $46,000 of EXTRA Roth annually for high earners on top of the regular contribution limits.