Mega Backdoor Roth IRA: The High Earner’s Guide

The Mega Backdoor Roth IRA (MBDR for short) takes the benefits of the Backdoor Roth IRA strategy we’ve discussed and magnifies them.

If you haven’t already, check out our content on the Backdoor Roth IRA- it provides the foundation for this article.

Executive Summary

• The Mega Backdoor Roth IRA (MBDR) lets high earners put more money into Roth accounts than standard limits allow.

• It works by making after-tax contributions to your 401(k), then converting them to a Roth

• Requires the right 401(k) features: Roth option, after-tax contributions, and in-service withdrawals or in-plan conversions.

• Goal: maximize tax-free growth and retirement savings beyond standard Roth/401(k) limits.

What Is A Mega Backdoor Roth IRA And How It Works

In short, the MBDR lets you put more money into your Roth IRA beyond the usual contribution limits - perfect for those looking to maximize tax-free growth.

MBDR works like this: you make after-tax contributions to your 401(k), then convert those dollars to your Roth 401(k). Sounds simple, right? It’s one of the more complex strategies, so let’s break it down in-depth.

401 (k) Contribution Limits And The Basics

Your 401(k) typically has two buckets: pre-tax and Roth. The pre-tax bucket lowers your taxable income today, but when you withdraw money in retirement, you’ll pay taxes on both contributions and earnings. Contributions to a Roth 401(k) are made after tax, so they don’t reduce your taxable income now, but future withdrawals of contributions and earnings are completely tax-free. These tax benefits are what make the Roth IRA and Roth 401(k) so appealing: tax-deferred growth and tax-free withdrawals in retirement.

Now, when you contribute to a 401(k), you aren’t subject to the income restrictions that apply to Roth IRAs and Traditional IRAs. High earners can max out their accounts each year, choosing between pre-tax or Roth 401(k) contributions.

The annual maximum contribution is $23,500 for those under 50, $31,000 for those over 50, and $34,750 for ages 60–63, thanks to catch-up provisions. There’s also an aggregate contribution limit, which includes both your contributions and your employer’s match.

For 2025, the total limit for employee contributions plus employer matching is $70,000 if you’re under 50, $77,500 if you’re over 50, and $81,250 for those 60–63. Catch-up contributions allow older participants to add even more each year.

Age Group	Max Employee Contribution	Max Aggregate Contribution (with employer match)
<50	$23,500	$70,000
50–59	$31,000	$77,500
60–63	$34,750	$81,250

After-Tax 401(k) Contributions and Basis Explained

You have your Roth 401(k), pre-tax 401(k) options, and your employer match - together, these make up your total 401(k) contributions. Some plans offer an additional feature: non-Roth after-tax contributions.

These contributions let you put after-tax money into your 401(k), if your employer allows it. Your earnings grow tax-deferred, and when you withdraw, you only pay taxes on the earnings - not on your contributions.

This is similar to a Roth in that both involve after-tax contributions. The difference is that your gains are taxed upon withdrawal. These contributions make up what’s called your basis. Anything above your basis will be taxed when withdrawn, but you can still enjoy tax-free growth until that point.

Most high earners who are already maxing out their 401(k) contributions may be looking for ways to contribute more and maximize their tax benefits. That’s where the MBDR strategy comes into play.

The Gap for High Earners: How to Contribute More

Let’s say you’re under 50 and have maxed out your 401(k) at $23,500, with an employer match of $12,000 -for a total of $35,500. You still have enough disposable income to continue saving in a tax-advantaged way and want to take advantage of the Roth’s tax-free benefits.

Since the total annual contribution limit is $70,000, you still have $34,500 of room to contribute. But you’ve already maxed out the pre-tax or Roth portion of your 401(k). The solution? Make a non-Roth after-tax contribution of $34,500 to fill the remaining space.

Contribution Type	Amount
Employee pre-tax/Roth 401(k)	$23,500
Employer match	$12,000
Remaining room for after-tax contribution	$34,500

Step 2: Convert After-Tax Contributions to a Roth

Sounds great, right? The catch: if you leave the money in the account, you’ll owe taxes on any earnings when you withdraw.

Step two of this strategy is to convert those non-Roth after-tax funds to either a Roth IRA or your Roth 401(k), if your company offers one. While there are maximum contribution limits on pre-tax and Roth contributions, there are no limits on conversions. A conversion simply moves your money from one type of account to another.

This step gets more of your money into a Roth account so you can enjoy the tax-free growth and withdrawals that make Roth accounts so valuable.

How to Implement the Mega Backdoor Roth Strategy

First, make sure your company’s retirement plan offers three key features:

1. The ability to contribute to a Roth 401(k).

2. The ability to make non-Roth after-tax contributions.

3. The ability to do in-service withdrawals or in-plan conversions.

You can convert funds to your own Roth IRA outside the plan - or keep them within the plan if it allows. An in-service withdrawal lets you move money outside the plan if a Roth 401(k) isn’t offered, while an in-plan conversion keeps the funds within your 401(k). There are no income restrictions or maximum limits on conversions, which is what makes this strategy possible and allows you to move more money into Roth accounts over time.

Act quickly after making your contributions. If your after-tax non-Roth funds grow before converting, you’ll owe taxes on any gains. Converting shortly after contributing helps you avoid this tax hit.

Key Takeaways

• Must meet plan requirements: Roth contributions, after-tax contributions, and conversion options.

• Make conversions quickly to avoid paying taxes on earnings.

• Allows high earners to significantly increase tax-free retirement savings.