A powerful retirement strategy that many people may overlook is the after tax 401(k) contributioncombined with in plan or in service Roth conversions, commonly known as the Mega Backdoor Roth. This approach can allow you to move significantly more money into tax free Roth accounts than the standard employee deferral limits allow.
Roth accounts provide tax free growth and tax free withdrawals in the future, which can be incredibly valuable for long term planning. Yet many savers don’t realize how much more they could be contributing toward tax free retirement funds.
Do You Qualify for This Strategy?
To use the Mega Backdoor Roth, your 401(k) plan must allow:
- After tax contributions (not Roth, after tax is a separate bucket), and
- In service withdrawals or in plan Roth conversions.
Some plans allow it, some don’t. Your first step is to ask Human Resources or review your plan document.
If your plan doesn’t support both features, the strategy cannot be implemented.
2026 IRS Limits
For the 2026 tax year:
o Employee deferral limit: $24,500 [irs.gov]
o Total 401(k) contribution limit (employee + employer + after tax): $72,000 [fidelity.com], [gusto.com]
This total limit is what opens the door for after tax contributions.
How the Mega Backdoor Roth Works (Updated 2026 Example)
Let’s assume:
o You’re under age 50.
o You contribute the $24,500 employee max.
o Your employer contributes $10,000 through match and or profit sharing.
Step 1, Calculate available “after tax” room:
$72,000 (2026 total contribution limit) $24,500 (your employee deferral) $10,000 (employer contributions) = $37,500 remaining available for after taxcontributions
So in this scenario, you can add up to $37,500 in after tax contributions into your 401(k) in 2026.
Step 2, Convert the after-tax money to Roth:
Once contributed:
o Convert after tax dollars to your Roth 401(k) (in plan conversion), or
o Roll them into a Roth IRA via an in service withdrawal.
This step is critical. If you don’t convert, future investment earnings on after tax contributions become taxable, defeating the purpose.
Why This Strategy Matters
Using the example above, you could move an additional $37,500 per year into Roth accounts, even after already maxing your employee deferral.
Over 10–20 years, the amount of tax free money accumulated can be substantial. This is why the Mega Backdoor Roth is one of the most powerful tax advantaged strategies available for high savers.
Evaluate Before Implementing
Before jumping in:
o Review your cash flow to ensure the contributions are sustainable.
o Confirm your plan rules.
o Coordinate with a financial advisor and tax professional to avoid pitfalls.
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