Sponsored Content

What is a Mega Backdoor Roth IRA account?

Published 9:45 am Friday, July 25, 2025

A Mega Backdoor Roth is a powerful retirement savings strategy that allows high-income earners to contribute significantly more to a Roth IRA than traditional methods permit. It’s especially useful for individuals whose income exceeds the Roth IRA contribution limits, enabling them to bypass the income restrictions through a series of strategic retirement plan contributions and conversions.

How It Works:

The process begins with contributions to a workplace retirement plan—such as a 401(k), 403(b), or 457 plan. Normally, these plans accept three types of contributions:

1. Traditional (Pre-Tax): Reduces taxable income now, but taxed upon withdrawal.
2. Roth: Taxed now, but withdrawals (including growth) are tax-free.
3. After-Tax: Similar to Roth in that it doesn’t reduce current taxable income, but growth is taxed when withdrawn unless converted.

The Mega Backdoor Roth strategy focuses on the after-tax contributions. While these don’t provide immediate tax benefits, they present a unique opportunity: they can be rolled over into a Roth IRA, turning them into potentially tax-free retirement funds.

Contribution Limits:

For 2025 (used as an example), the employee contribution limit is $23,500 (plus a $7,500 catch-up if over 50), applicable to traditional and Roth contributions. However, the total contribution limit, including employer contributions and after-tax contributions, is $70,000 (or $77,500 with catch-up). SECURE Act 2.0 introduced a “super” catch-up contribution. This option allows individuals aged 60, 61, 62, and 63 to contribute up to $11,250 instead of $7,500.

For instance, if someone aged 50 contributes the max $31,000 and receives a $10,000 employer match, they’ve contributed $41,000, leaving up to $36,500 in room for after-tax contributions. This after-tax portion is what gets converted to a Roth IRA.

Someone aged 62 contributes the max $34,750 and receives a $10,000 employer match, they’ve contributed $44,750, leaving up to $32,750 in room for after-tax contributions. This after-tax portion is what gets converted to a Roth IRA.

The Conversion Process:

To implement the Mega Backdoor Roth, an individual must:

1. Make after-tax contributions to their retirement plan.
2. Roll those contributions into a Roth IRA.
3. Ensure their plan allows in-service distributions, which let you roll over funds while still employed.

If in-service withdrawals aren’t allowed, the after-tax contributions can still be rolled into a Roth IRA when the individual leaves the employer.

Importantly, this strategy avoids additional taxes during the Roth conversion, as the money being converted was already taxed. Only the growth on the after-tax contributions would be taxable if not converted promptly.

Key Benefits:

• Significantly higher contribution potential than standard Roth or backdoor Roth IRAs.
• Bypasses income limits, making Roth savings accessible for high earners.
• Adds tax diversification in retirement planning.
• Supports early retirement strategies like Roth IRA conversion ladders.

In summary, the Mega Backdoor Roth allows high earners to supercharge their Roth savings, providing tax-free growth potential on a much larger scale than standard IRA contribution methods, with the added advantage of flexibility for early retirement.