Mega backdoor Roth

What a mega backdoor Roth is

The strategy has two steps. First, the employee makes voluntary after-tax contributions, which are not subject to the $24,500 deferral limit for 2026. Second, the employee moves that money into Roth, either through an in-plan Roth conversion or by rolling it to a Roth IRA. Once converted, future growth can be withdrawn tax-free if the Roth rules are met.

For 2027 the total limit rises to $75,000 and the deferral limit to $25,500. (IRS Notice 2026-66)

The room available is the 2026 annual additions limit of $72,000 minus the employee’s deferrals and all employer contributions.

Why it matters to employers

It is a plan feature, not something an employee can do alone. The plan document must allow after-tax contributions and either in-plan Roth conversions or in-service withdrawals of after-tax money. It is a common request from founders, executives and engineers who already defer the maximum.

The constraint is testing. After-tax contributions go through the ACP test each year, including in safe harbor plans. If only highly compensated employees use the feature, the plan can fail and must refund part of their contributions.

Example with 2026 figures

A 40-year-old defers $24,500 and gets a $9,000 match. She can contribute up to $72,000 minus $33,500, or $38,500, after tax and convert it to Roth. If she converts soon after each contribution, there are few taxable earnings.

Common mistakes

• Promising the feature to executives before running a projected ACP test.

• Allowing after-tax contributions with no way to convert them.

• Delaying conversions, so earnings build up and become taxable at conversion.

• Presenting it as tax advice. Whether it suits an employee depends on their own tax position.