Mega backdoor Roth
Also: mega backdoor Roth, MBR, mega backdoor, in-plan Roth conversion
A strategy that funnels after-tax 401(k) contributions into a Roth IRA or Roth 401(k), adding tens of thousands of annual Roth space beyond the standard elective deferral limits.
The mega backdoor Roth takes advantage of the gap between the $23,500 elective deferral limit and the $70,000 all-sources 401(k) limit for 2025. An employee contributes after-tax dollars beyond the elective limit, up to the gap left after employer match, then immediately converts those after-tax dollars to a Roth 401(k) (in-plan conversion) or rolls them to a Roth IRA. Only pre-tax earnings on the after-tax contributions are taxed on conversion.
Example: an engineer maxes $23,500 pre-tax 401(k) and receives $21,000 employer match. That leaves $25,500 of all-sources headroom. She contributes $25,500 after-tax and converts it to Roth weekly, avoiding earnings buildup. Over 20 years at 7% returns, this adds roughly $1 million of tax-free wealth.
Common mistake: making a large lump after-tax contribution and waiting months to convert. Pre-tax earnings accrue during the wait and become taxable on conversion. Set up automatic after-tax deferrals and automatic in-plan conversions to eliminate the gap.
The mega backdoor Roth matters at plans that allow after-tax contributions and in-plan conversions (about half of large tech employers), at high income levels where direct Roth contributions phase out, and at any year with surplus cash flow.