The mega backdoor Roth: a straightforward strategy for high earners locked out of Roth IRAs

ARTICLE | January 27, 2026

For high-income professionals, the universe of tax-advantaged retirement strategies narrows quickly. Income limits phase out access to Roth IRAs. Traditional IRA contributions may be limited or non-deductible. And after maximizing annual 401(k) deferrals, it's not always clear where to save next.

That's where mega backdoor Roth conversions come in. When executed correctly and especially when paired with employer contributions, this strategy can shift tens of thousands annually into a Roth environment—unlocking tax-free growth and tax-exempt withdrawals in retirement. At Vasquez + Company, we've seen this sophisticated planning technique become one of the most powerful tools available to affluent individuals who are locked out of traditional Roth contribution options.

What is a mega backdoor Roth conversion?

To understand this strategy, you first need to know that 401(k) plans have two separate contribution limits:

• The employee deferral limit: $24,500 for 2026—this is the maximum you can contribute from your paycheck as pre-tax or Roth deferrals.
• The total plan contribution limit: $72,000 for 2026—this includes everything: your deferrals, employer contributions (like matches or profit-sharing), and any additional after-tax contributions.

Most people only think about the first limit. But if your employer contributions don't fill the gap between $24,500 and $72,000, and your company 401(k) plan document allows for it, you can make additional after-tax contributions into your 401(k) plan to fill that space.

Let's say you contribute the maximum $24,500 in salary deferral, and your employer contributes $14,000 as a company-funded match or profit-sharing. That's $38,500 total, leaving $33,500 of unused room under the $72,000 cap. If your plan permits, you can contribute that $33,500 as after-tax dollars into the 401(k) plan.

Here's where the strategy comes in: these after-tax contributions aren't Roth contributions; they're in a separate after-tax account within your 401(k). However, if your plan permits, you can immediately convert those after-tax dollars into a Roth 401(k) or roll them into a Roth IRA account outside the plan. Once converted, they grow tax-free and can be withdrawn tax-free in retirement, just like any other Roth money.

This is valuable because high earners are often locked out of contributing directly to Roth IRAs due to income limits. The mega backdoor Roth conversion bypasses those limits entirely, allowing you to funnel tens of thousands of dollars annually into a Roth environment—far more than the standard $7,000 Roth IRA contribution limit. The strategy becomes especially powerful at firms with generous employer matches. After-tax contributions have to go through some non-discrimination testing at the plan level, so the more generous the employer match, the more likely these after-tax contributions will pass the non-discrimination testing criteria.

It's important to understand what this strategy is and isn't. You're not contributing beyond the $72,000 cap—you're filling unused space within it. The strategy lies in choosing to use this space for after-tax 401(k) contributions (which you can convert to Roth) rather than investing in a regular taxable brokerage account. For high earners who can't contribute directly to Roth IRAs due to income limits, this becomes one of the few remaining ways to build substantial tax-free retirement assets.

Plan design is key

Before making any assumptions, check your 401(k) plan documents or speak with your HR department. Not all plans support this strategy.

To execute a mega backdoor Roth conversion, your plan must allow after-tax (non-Roth) contributions, and either in-service withdrawals (so funds can be rolled into a Roth IRA) or in-plan Roth conversions.

Some plans allow only one of these options. Others don't allow after-tax contributions at all. Larger companies and tech-sector employers are more likely to support these features. Smaller businesses may not.

In our work with high net worth individuals across California, Arizona, and Nevada, we've found that understanding your specific plan's provisions is the essential first step. A comprehensive review of your plan documents—ideally with your tax advisor—can reveal whether this opportunity exists for you and identify any specific restrictions or requirements that may apply.

The real barriers: cash flow and plan access

While the mechanics of this strategy are straightforward—contribute after-tax dollars and convert them promptly—executing it requires clearing two significant hurdles.

First, you need substantial disposable income. After maxing out your $24,500 deferral, you're contributing additional after-tax dollars that have already been taxed. In the example above, that's another $33,500 per year. This level of cash flow is realistically available only to high earners with significant savings capacity.

Second, your plan must support the strategy. The majority of 401(k) plans don't allow after-tax contributions or the conversions necessary to execute this approach. Even when they do, they may impose restrictions through annual nondiscrimination testing that limit contributions for highly compensated employees.

The strategy itself isn't complex decision-making: if you have the cash flow and your plan permits it, it's almost always advantageous to pursue tax-free growth over taxable investment accounts. The real question is whether you have access to begin with. This is where personalized guidance becomes critical—understanding your unique financial situation, cash flow projections, and how this strategy fits within your broader wealth management objectives.

Timing and tax treatment matter

When done correctly, converting after-tax 401(k) contributions to a Roth account doesn't trigger additional tax because the contributions were already taxed. However, if those after-tax contributions have earned investment gains before the conversion, the earnings portion will be taxed at conversion.

To minimize or eliminate this risk, many plans allow for frequent in-plan conversions or automatic rollovers to a Roth IRA shortly after each payroll contribution. The faster you convert, the less opportunity there is for taxable growth in the after-tax account. Some employers even offer automatic conversion features that execute this immediately with each contribution.

One significant advantage of the mega backdoor Roth over the traditional backdoor Roth IRA is how the pro rata rule applies. With 401(k) plans that maintain separate accounting for different contribution types, you can isolate your after-tax contributions for conversion without being forced to include your pre-tax 401(k) balance. This is fundamentally different from IRAs, where the pro rata rule requires you to consider all your traditional IRA balances when converting.

However, there are two important caveats:

• Within your after-tax 401(k) account, the pro rata rule does apply to any earnings that have accumulated. You cannot cherry-pick only the principal to convert. If your after-tax account has $40,000 in contributions and $10,000 in earnings, any distribution includes both proportionally.
• Your traditional IRA balances don't affect mega backdoor Roth conversions, but they remain relevant if you're also doing traditional backdoor Roth IRA conversions separately. The two strategies are independent from a tax perspective, but coordinating both requires careful planning with a tax advisor.

Since 2014, IRS guidance has allowed you to split a distribution from your 401(k) to multiple destinations—rolling pre-tax dollars to a traditional IRA and after-tax dollars to a Roth IRA simultaneously, making execution more flexible than it once was.

We work closely with our clients to ensure proper timing and documentation of these conversions. The difference between a well-executed conversion and one that triggers unnecessary tax liability can be substantial, particularly when dealing with large contribution amounts.

Common pitfalls to avoid

Despite its advantages, the mega backdoor Roth conversion strategy can be derailed by avoidable missteps. Here are a few pitfalls to watch for:

• Delaying conversions too long, which leads to taxable earnings on after-tax contributions.
• Blending pre-tax and after-tax funds in a single conversion, leading to complex tax reporting.
• Overlooking annual plan testing requirements, such as ACP tests, which may limit or return after-tax contributions for highly compensated employees in non-safe harbor plans.

Each of these risks can be managed, but they require proactive planning, accurate payroll administration, and clear communication with plan sponsors. In our experience serving entrepreneurs, executives, and other affluent individuals, we've found that anticipating these potential complications—and addressing them before they become problems—is essential to maximizing the benefits of this strategy.

A Roth engine for the right retirement

For those with access to the right plan design, mega backdoor Roth conversions offer one of the most powerful ways to expand Roth assets—often allowing contributions three to five times higher than what's possible through a traditional IRA.

But success hinges on coordination. A well-executed strategy aligns HR policies, plan features, tax timing, and personal cash flow—all in concert. When done right, it's not merely a workaround for Roth contribution limits. It's a high-efficiency engine for building long-term, tax-free retirement wealth.

At Vasquez + Company, we bring over 55 years of experience helping high net worth individuals navigate complex tax planning strategies. Our hands-on, partner-level approach means you receive personalized attention tailored to your unique financial situation and long-term objectives. We don't just prepare your returns—we partner with you to develop innovative solutions that maximize your wealth-building opportunities while ensuring full compliance with evolving tax regulations.

For more personalized guidance on whether the mega backdoor Roth strategy is right for your situation, contact our office. We're happy to review your specific circumstances and help optimize your retirement savings strategy.