What is a mega backdoor Roth and how does it work?

The mega backdoor Roth is an advanced retirement savings strategy that allows you to contribute up to $46,000 extra into a Roth account in 2024, on top of your regular 401(k) and IRA contributions. It's called "mega" because it dwarfs the standard backdoor Roth IRA ($7,000 limit).

How it works:

• Max out your regular 401(k) contributions: $23,000 for 2024 ($30,500 if 50+)
• Make after-tax (non-Roth) contributions to your 401(k): The total 401(k) limit for 2024 is $69,000 (employee + employer contributions). After your $23,000 and your employer's match, you can contribute the remaining space as after-tax dollars.
• Convert or roll over the after-tax contributions to a Roth account: Either an in-plan Roth conversion (if your plan allows it) or a rollover to a Roth IRA.

Example for 2024:

• You contribute $23,000 (pre-tax or Roth 401k)
• Your employer matches $10,000
• Total so far: $33,000
• Remaining space: $69,000 - $33,000 = $36,000 available for after-tax contributions
• You contribute $36,000 after-tax and immediately convert to Roth = $36,000 in Roth money

Requirements (your plan MUST allow these):

• ✅ After-tax (non-Roth) employee contributions
• ✅ In-service distributions or in-plan Roth conversions of after-tax money
• Not all 401(k) plans offer these features — check with your HR/benefits team

Why convert immediately?

If you leave after-tax contributions sitting in the traditional 401(k), the earnings on those contributions are taxable when withdrawn. By converting to Roth immediately (or as frequently as your plan allows), you minimize taxable earnings and get the money into a Roth where it grows tax-free forever.

Who benefits most:

• High-income earners who have already maxed out their 401(k) and backdoor Roth IRA
• People at large companies with generous 401(k) plans (tech companies like Google, Microsoft, and Meta are known for offering this)
• Anyone who wants to accelerate Roth savings for tax-free retirement income

Important notes:

• This does NOT affect your IRA contributions — you can still do a regular backdoor Roth IRA in addition to the mega backdoor Roth
• The $69,000 limit is per employer, per year
• If you're 50+, the total limit is $76,500 for 2024