Mega Backdoor Roth: A Powerful Retirement Strategy for High Earners

“For high earners who already max out other retirement accounts, the Mega Backdoor Roth may create a pathway to accelerated, tax-free savings.”

For high-income earners looking to build long-term, tax efficient wealth, the Mega Backdoor Roth strategy may offer a unique opportunity. While traditional Roth IRA contributions are limited by income and capped at relatively low annual amounts, this advanced technique can allow eligible individuals to contribute up to $46,500 more into a Roth account annually under 2025 limits, all growing tax-free.

Here’s how it works. Most people know about the $23,500 or $31,000 if age 50 and older limit for employee contributions to a 401(k). But the IRS allows total contributions, including employer match and after-tax employee contributions, up to $70,000 or $77,500 if 50 or older. If your plan allows, you can make after-tax contributions above the standard limits and then convert that money into a Roth account, either inside the plan through an in-plan Roth conversion or outside through a rollover to a Roth IRA.

The benefit is clear. Once those after-tax dollars are converted, they grow tax-free, and withdrawals in retirement are also tax free if qualified. This gives you access to significantly more Roth space than a traditional Roth IRA allows, without being

subject to income limits. For high earners who already max out other retirement accounts, the Mega Backdoor Roth may create a pathway to accelerated, tax-free savings.

That said, not every 401(k) plan supports this strategy. You will need a plan that permits both after-tax contributions and either in-service withdrawals or in-plan Roth conversions. If your plan allows only one or neither, the strategy may not be possible or at least not optimal. It is important to review your plan documents or speak with your plan administrator before moving forward.

Timing also matters. Ideally, you want to convert the after-tax contributions quickly to minimize any taxable growth before the conversion. Failing to do so could trigger taxes on earnings. Additionally, careful tracking is necessary to ensure the IRS receives accurate information about what is being converted, especially when rolling out to a Roth IRA.

In summary, the Mega Backdoor Roth is an advanced but highly effective strategy for those looking to grow more tax-free retirement wealth, particularly for individuals whose income exceeds Roth IRA limits. If your plan allows the necessary features and you are already maximizing your other savings options, this strategy may help you build a more flexible and tax-efficient retirement portfolio. Altman Advisors can help ensure the strategy is executed correctly and aligns with your broader financial goals.