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What is a "mega backdoor Roth"?

Key takeaways

  • A "mega backdoor Roth" strategy can potentially allow some people to save more in a Roth IRA and/or Roth 401(k) than they otherwise would be able to.
  • Whether or not the strategy is available to you depends on the specific features of your 401(k) or other workplace retirement plan.
  • If your plan permits it and you're considering using the strategy, be sure to understand the potential tax implications, and consider whether it makes sense in the context of your other financial goals.

If you've ever gone online and researched ways to save more for retirement in general, or save more in a Roth IRA in particular, you may have come across a strategy commonly referred to as the "mega backdoor Roth."

So how does this strategy work, and is it potentially an option in your situation? Read on for more.

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What is a mega backdoor Roth?

A mega backdoor Roth refers to a strategy that can potentially allow some people who would be ineligible to contribute to a Roth account, based on their income or contribution limits, to transfer certain types of 401(k) contributions into a Roth—including a Roth IRA and/or Roth 401(k).

If available, the strategy can be particularly useful for those who earn too much to contribute to a Roth IRA directly.1 If you earn $161,000 or more as a single taxpayer, or $240,000 or more as a married-filing-jointly taxpayer, then you can't contribute anything directly to a Roth IRA in the 2024 tax year.

How does a mega backdoor Roth work?

Put very simply, the mega backdoor Roth strategy entails 2 steps: (1) making after-tax contributions to your 401(k) or other workplace retirement plan, and (2) then doing a conversion either to a Roth IRA or Roth 401(k). (Note that not all plans allow these steps; more details on that below.)

Let's break down those 2 steps. First, it's important to understand that the strategy starts with a specific type of contribution: after-tax 401(k) contributions. An after-tax 401(k) contribution is different from a Roth 401(k) contribution and different from a pre-tax contribution, which is often the default option with a 401(k). Why does it start with after-tax contributions? Because after-tax contributions may enable you to save in your workplace retirement plan beyond the annual contribution limit for pre-tax and Roth contributions. Here's a look at how that breaks down:

Infographic shows the 2024 contribution limits for various types of 401(k) contributions, including pre-tax, Roth, after-tax, and employer contributions.
For the 2024 tax year, savers age 50 and older are eligible for an additional $7,500 in catch-up contributions, for a total of $30,500 in pre-tax and/or Roth contributions and a total of $76,500 in all types of contributions combined. Note that the $7,500 in catch-up contributions cannot be comprised of employer contributions, and limits apply to the underlying composition of contributions.

As you can see, if you only make pre-tax and/or Roth contributions, then the most you can contribute is $23,000 (or $30,500 if age 50 or older). With after-tax contributions, you may be able to increase the total amount saved to $69,000 (or $76,500 if 50 or older2)—although any amounts contributed by your employer would count toward that limit. However, after-tax contributions can come with some downsides. One key drawback is that when you make withdrawals in retirement, any earnings will be taxed at ordinary income rates. Another important issue to consider is how the strategy could impact any employer contributions. If you reach the contribution limit for pre-tax, Roth, and after-tax amounts for a given calendar year, then your employer may not be able to contribute. And, depending on your plan, after-tax contributions may not be eligible for an employer match.

That brings us to step 2 of the mega backdoor strategy: converting the after-tax contributions to a Roth account. If you have a Roth option within your retirement plan, you may be able to convert the after-tax 401(k) amounts to a Roth 401(k). This is called an in-plan Roth conversion. Or, if your plan allows it, you may be able to roll your after-tax contributions to a Roth IRA. Prorated earnings attributable to the original contribution can be rolled to the Roth IRA, incurring taxes, or separately directed to a traditional IRA without incurring taxes.

Whether you convert to a Roth IRA or Roth 401(k), you will need to pay taxes on any earnings included in the conversion (you will not generally need to pay taxes on contributions you convert, as those amounts have already been taxed). A tax professional can advise you on the potential tax impacts of the strategy on your situation.

Are you eligible for a mega backdoor Roth?

Whether you are eligible for a mega backdoor Roth depends on the specifics of your workplace retirement plan. Here's what plans generally must permit in order to use the strategy:

Infographic shows the features that a workplace retirement plan must generally include in order to implement a

Plan features can vary widely. For example, many plans do not permit in-service withdrawals, which means taking a distribution from your 401(k) while you are still employed.

Consult your plan documents and plan administrator to better understand the rules and features of your employer's plan, and consider also how the rules could change should you switch employers.

How to set up a mega backdoor Roth

If you are considering trying to set up a mega backdoor Roth for yourself, the first step may be to check the details of your workplace retirement plan to make sure that it offers the features and that you are eligible for the strategy.

The next step may be to consult a tax and/or financial professional to see if the strategy makes sense in your situation, and to better understand the impacts on your taxes and planning.

If you determine that it is permissible and appropriate in your situation, then you can set one up by making after-tax contributions to your 401(k), and periodically rolling those contributions via a rollover distribution to a Roth IRA or doing an in-plan conversion to a Roth 401(k). Some employers even offer an auto-convert feature inside their plans, in which case participants can set it up so that any after-tax contributions are automatically converted to a Roth at regular intervals.3

Contribution limits

If you use the mega backdoor Roth strategy, how much you can save is limited by the annual caps on 401(k) contributions. It also depends on how much you have contributed via pre-tax and Roth contributions, and how much your employer has contributed. As the earlier chart showed, for 2024, people under age 50 can contribute a maximum of $23,000 in pre-tax and Roth contributions, and the maximum for all types of contributions is $69,000.

So, for example, suppose that someone is 35 years old and has contributed the maximum of $23,000 in pre-tax and/or Roth contributions. And suppose that their employer has also contributed half of this amount, or $11,500, in matching contributions. In that case, the maximum that they could contribute after-tax to their 401(k) for 2024 would be:

$69,000 ‒ $23,000 ‒ $11,500 = $34,500

There are no limits on how much you can convert to a Roth IRA in a given year, nor are there limits to in-plan conversions.4 However, these conversions can trigger tax consequences in the year in which you convert, which may be a drawback to converting large amounts in a single year.

Is a mega backdoor Roth worth it?

Whether the mega backdoor Roth strategy is worth it in your situation can depend on a range of factors. Some issues to consider include:

  • Whether it is allowed under your workplace retirement plan
  • How much you are currently saving for retirement and how much you already have saved
  • What other financial goals you have, and how much you have saved toward these goals
  • Your current tax rate versus your potential tax rate in retirement
  • How a Roth conversion would impact your taxes for the year in which you convert

In addition to those financial considerations, there can be practical ones. The mega backdoor Roth can be a complex strategy. Consider whether you have the time and interest to learn the rules and stay on top of the administrative legwork it can take to make the strategy work.

Could the mega backdoor Roth be going away?

While the mega backdoor Roth strategy is currently still permissible under plans that allow it, it's possible it could be eliminated one day. In recent years, legislation has been introduced that would have ended the strategy by prohibiting conversions of after-tax 401(k) contributions to Roth, although no such legislation has yet been enacted into law.

Unless legislation prohibiting the strategy is passed, mega backdoor Roth conversions are still possible in plans that allow them.

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1. Or who want to contribute more to the Roth source balance of their 401(k) than is allowed directly. 2. Note that the $7,500 in catch-up contributions for those 50 or older may not be comprised of employer contributions. 3. If considering this approach, it is generally advisable to first make sure you are maxing out pre-tax and direct Roth contributions. Some plans allow participants to make after-tax contributions at the same time as pre-tax and Roth contributions. However, if your after-tax contributions cause you to reach your contribution limits, you will not be able to make further contributions. 4. Note however that unlike with an IRA, with a 401(k) participants generally cannot make a large lump-sum deposit at the end of the year. Instead, all contributions must generally be made as salary deferrals. This can limit how much one may be able to contribute after-tax to a 401(k) within a given time fame.

This information is intended to be educational and is not tailored to the investment needs of any specific investor.

For tax year 2024, if you're single, the ability to contribute to a Roth IRA begins to phase out at MAGI of $146,000 and is completely phased out at $161,000. If you're married filing jointly, the phaseout range is $230,000 to $240,000.

Investing involves risk, including risk of loss.

Fidelity does not provide legal or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact investment results. Fidelity cannot guarantee that the information herein is accurate, complete, or timely. Fidelity makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Consult an attorney or tax professional regarding your specific situation.

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