The Roth Series III: The Mega Backdoor Roth IRA

The Roth IRA, Backdoor Roth IRA and Mega Backdoor Roth IRA are oft misunderstood and underutilized retirement savings strategies. In my Roth three-part series this week, I'm going to break down each Roth IRA strategy, who is eligible to use them, and what you need to know when using them.


This article focuses on the Mega Backdoor Roth IRA. You can find my other articles from the Roth IRA series here.

What Is The Mega Backdoor Roth Strategy?
The after-tax 401(k) has a much higher limit than the standard 401(k) annual limit; for 2023 it’s limited to $66,000 in total 401(k) contributions. This means $66k minus your combined pre tax and Roth 401(k) contributions (up to $22.5k for 2023) and minus any employer contributions. This usually leaves a lot of room for extra tax advantaged retirement contributions.

Who Is The Mega Backdoor Roth Strategy For?
The Mega Backdoor Roth may be for you if you (and your spouse if MFJ) are over the Roth IRA IRS-determined income limits. This is where backdoor strategies become useful. After maxing out your pretax 401(k), this is often the next retirement savings step.

The Mega Backdoor strategy is only available to employees with work sponsored 401(k) retirement plans, and only about a quarter of them at that. To be able to carry out a Mega Backdoor Roth, first you have access to an after-tax 401(k) through your employer. Employees with a 401(k) typically have two account options: A Traditional (aka pre-tax) account and a Roth 401(k) account. The After-Tax 401(k) is a third, completely separate account type only offered by certain, usually very large companies.

If you do not have access to an after-tax 401(k), but still want to maximize tax advantaged retirement savings, learn more about the regular Roth IRA and Backdoor Roth IRA strategies instead.


I Do Have An After-Tax 401(k). How Do I Do A Mega Backdoor Roth?

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Want to read the rest of this article? Visit Sage Financial's website for free access to this blog article.

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