Mega Backdoor Roth

The mega backdoor Roth is a plan-level maneuver: contributing after-tax dollars to a 401(k) above the normal deferral limit, then converting those dollars to Roth inside the plan. The normal deferral caps at $24,500 in 2026; total annual additions from all sources cap at $72,000. The difference, minus any employer match, is the after-tax room — often $35,000 or more at a large employer. Converting it to Roth moves the growth from tax-deferred to tax-free, and there is no income limit anywhere in the structure.

Two plan features are prerequisites: the plan must allow after-tax contributions, and it must offer in-plan Roth conversions or in-service distributions. Both are common at large technology and consulting employers and rare at small ones, which is why the maneuver is distribution-limited rather than income-limited. The IRS sanctions it explicitly; the annual additions limit in IRC Section 415(c) is the only ceiling.

The arithmetic is the annual additions ceiling. A 2026 contribution year holds three buckets: the $24,500 elective deferral, the employer match, and after-tax contributions, summing to $72,000 under IRC Section 415(c). With a 50% match on the full deferral, $12,250, the after-tax bucket holds $35,250; without a match it holds $47,500. Every after-tax dollar converted to Roth before it earns anything is pure tax-free basis, and the growth on it compounds without tax forever. The buckets share one ceiling, so a larger match means a smaller after-tax room.

The mechanics run through payroll and the plan portal. After-tax contributions are deducted like any deferral but with no tax benefit on the way in; the value is entirely in the conversion. The conversion itself — in-plan, no distribution required at most large plans — moves the balance into the Roth 401(k) subaccount. The timing matters: after-tax earnings that accrue before conversion are ordinary income at conversion, so automating the conversion per paycheck, where the plan allows it, keeps the taxable sliver near zero. The Roth 401(k) subaccount follows Roth rules: tax-free qualified withdrawals after 59½, and RMDs eliminated since 2024.

For a high earner shut out of the Roth IRA by income limits, this is the largest legal Roth pipeline in the code: up to $47,500 a year with no income cap, versus the $7,500 Roth IRA limit that phases out near $160,000 of modified income. A decade of maxed after-tax conversions at a 7% return builds roughly $487,000 of Roth balance. The strategy is a features question before it is a tax question.

I watched a colleague named Brent (yes, that Brent) max his deferral, notice the after-tax option in his plan's portal, and contribute $20,000 into it across two years with no conversion feature in the plan document. The after-tax bucket grew tax-deferred and will pay ordinary income rates at withdrawal: the worst of both wrappers. His plan's menu converted the maneuver from arbitrage into subscription.

The highest-leverage thing most eligible employees can do is check the portal for two features, after-tax contributions and in-plan conversion, before assuming the strategy applies; both are plan elections, not rights. Where they exist, automate the conversion per paycheck and size the room with the Roth conversion tax calculator. Compare the wrappers with the taxable versus deferred calculator before the election is filed.