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The mega backdoor Roth lets some people put far more into Roth each year than an IRA allows. Whether it makes sense for you depends on how your 401(k) is built, how you are paid, and whether you have staff.
Virtus Financial Partners is an SEC-registered investment advisor that provides financial planning and investment management for dental professionals. This article explains how the strategy works, how it differs from the backdoor Roth IRA, and where it tends to fit.
The backdoor Roth IRA is for people whose income is too high to contribute to a Roth IRA directly. You make a nondeductible contribution to a traditional IRA and then convert it to Roth. For 2026, the IRA limit is $7,500, plus $1,100 if you are 50 or older. If you hold other pre-tax IRA money, the pro rata rule can make part of the conversion taxable. We cover that in our overview of Roth conversions and the backdoor Roth IRA.
The mega backdoor Roth runs through a 401(k), and your plan has to offer two things:
Neither feature is required by law, so a plan may have one, both, or neither. If either is missing, the strategy is not available in that plan. Your plan document, or your third-party administrator (TPA), will tell you.
Contributions to your 401(k) account for the year count toward one limit, called the annual additions limit. For 2026, it is $72,000, or 100% of your compensation if that is lower. Catch-up contributions do not count against it. That is up to $8,000 more if you are 50 or older, or $11,250 if you are 60 through 63.
Three buckets share that $72,000:
After-tax contributions are not deferrals, so they do not count against the $24,500. They only count against the $72,000.
After-tax contributions come out of your paycheck after income tax, the same way a Roth deferral does. They land in a separate after-tax account inside the plan.
The goal is to move that money to Roth soon after it goes in. You already paid tax on the contribution, so it is not taxed again when you convert. Any earnings on that money before the conversion are taxable when you convert. Converting soon keeps those earnings small.
If your plan lets you withdraw the after-tax money to a Roth IRA instead, the IRS allows a clean split. Under IRS Notice 2014-54, when the money goes out at the same time, the after-tax contributions can go to a Roth IRA and the pre-tax earnings can go to a traditional IRA. That way the earnings stay tax-deferred.
Once the money is in Roth, it grows without tax. Qualified distributions come out tax-free. Generally, that means you are 59½ or older and at least five tax years have passed since your first Roth contribution to that account.
Consider a hypothetical owner, Dr. Lee. She pays herself a W-2 of $120,000, defers the full $24,500, and the practice makes a 3% Safe Harbor contribution. There is no profit sharing.
| 2026 contributions for Dr. Lee | Amount |
|---|---|
| Annual additions limit | $72,000 |
| Employee deferral | $24,500 |
| Safe Harbor contribution (3% of $120,000) | $3,600 |
| Profit sharing | $0 |
| Room left for after-tax contributions | $43,900 |
Hypothetical illustration, not an actual client result. Full assumptions are in the note at the end of this article.
Her $120,000 of pay is above $72,000, so the dollar limit applies. If her deferral is Roth and she converts the full $43,900, that is $68,400 going to Roth in one year. A backdoor Roth IRA allows $7,500.
That $43,900 comes out of her take-home pay after tax. It also has to pass the test described below.
Profit sharing fills the same $72,000 limit, and it does it with pre-tax dollars the practice can deduct, within IRS limits. Every dollar of profit sharing is a dollar of after-tax room used up.
A pre-tax contribution defers the tax. The money is taxed as income when it comes out in retirement. Still, for an owner in a high bracket, I would usually rather defer tax at today's rate than pay it now for Roth treatment later. That is why an owner who is already doing profit sharing will likely not use the after-tax bucket.
The after-tax bucket earns its place in two situations:
Whether either applies depends on your pay, your tax bracket now and in retirement, and your plan design. It should be evaluated with your CPA and your retirement plan advisor.
After-tax contributions are subject to a nondiscrimination test called the ACP test. It compares the contribution rates of highly compensated employees with everyone else. In this test, a highly compensated employee is generally anyone who owned more than 5% of the practice this year or last year, or who earned more than $160,000 the year before.
Safe Harbor design does not exempt after-tax contributions. Safe Harbor relieves the testing on deferrals and on Safe Harbor matching contributions. After-tax contributions are still tested.
If your staff do not make after-tax contributions too, the staff side of the test is at or near zero. The owner's after-tax contributions can then be limited or eliminated. Amounts over the limit are refunded with their earnings, generally after the plan year ends. Your TPA runs the test.
That test is why I rarely recommend the mega backdoor Roth in a practice with staff.
It tends to fit in three places:
It tends not to fit in a practice with staff that already uses a Safe Harbor 401(k) with profit sharing. In my view, the owner's room is better used pre-tax, and the test works against the owner.
If you are weighing it against other accounts, our savings order of operations walks through where each one fits.
The after-tax room in a 401(k) can be large. In a practice with staff, it competes with profit sharing for the same $72,000 and has to pass a test that Safe Harbor does not cover. In my opinion, profit sharing is the better use of that room for an owner with staff. If you have no staff, or you or your spouse work for an employer whose plan offers the feature, check the plan document to see whether both features are there.
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Yes. It uses two features the tax rules allow: after-tax contributions within the annual additions limit, and a conversion to Roth inside the plan or by rollover to a Roth IRA.
IRS Notice 2014-54 sets out how after-tax and pre-tax amounts are split when they go to different accounts. Your plan still has to offer both features.
Yes. They use separate limits. The IRA limit is $7,500 for 2026, plus $1,100 at 50 or older.
After-tax 401(k) contributions count against the $72,000 annual additions limit instead.
No. The $24,500 limit applies to pre-tax and Roth deferrals only.
After-tax contributions count only against the $72,000 annual additions limit, along with your deferrals and your employer's contributions.
The excess contributions of the highly compensated employees, plus the earnings on them, are generally paid back out to those employees.
The plan has until the end of the following plan year to do it, but a refund made more than 2½ months after the plan year ends generally costs the practice a 10% excise tax. The refunded earnings are taxable, and your TPA handles the correction.
Dr. Lee is a hypothetical, not a client. The example assumes 2026 limits, a W-2 of $120,000, a 3% Safe Harbor nonelective contribution, no profit sharing, and no catch-up contributions. It assumes the plan allows after-tax contributions and a Roth conversion, and that the ACP test does not limit her contributions. It assumes no investment returns. Your figures will depend on your plan document, your pay, and your plan's testing.
Virtus Financial Partners is an investment advisor registered with the U.S. Securities and Exchange Commission; registration does not imply a certain level of skill or training. This content is for educational purposes only and does not constitute personalized investment advice, and Virtus does not provide legal or tax advice. Virtus receives compensation for the advisory services it provides. Certain Virtus representatives are also licensed insurance agents who may offer insurance products in a separate, non-advisory capacity for commissions, which presents a conflict of interest. Past performance is not indicative of future returns. Information is current as of the date published and is subject to change. You should consult your own attorney, CPA, and financial advisor regarding your specific situation.
