Mega Backdoor Roth 401(k)

Retirement distributions from a Roth account are tax-free if certain conditions are met. This is very advantageous for retirees. A mega backdoor Roth 401(k) allows you to contribute after-tax money to a Roth 401(k) account up to the maximum annual contribution limit provided under law. It's called a "mega" Roth because the contributions can be much larger than the 2025 standard $7,000 Roth maximum contribution. It's called a "backdoor" Roth because it is NOT subject to Roth's 2025 income ceiling of $150,000 for single filers and $236,000 for married filers. Folks earning more than these amounts are not potentially eligible. 

Here are some examples to illustrate how Mega Backdoor Roth's work. Please bear in mind this is not tax or consulting advice. Please consult your tax advisor or, better yet, call us for a complimentary no cost, no obligation, confidential evaluation report. Click here to Contact us About the Mega Roth 401(k)

Mega Backdoor Roth 401(k) Example for 60, 61, 62, and 63 year old person

Assume an employed person is 60, 61, 62, or 63 years old. For 2025, this person is eligible to make a salary deferral of $23,500, plus a catch up contribution of $11,250 = $34,750. An employer decides to match the salary deferral 100%, or $23,500. In 2025, the employee makes the maximum salary deferral of $34,750 and the employer matches $23,500 = $58,250. The employee may contribute $23,000 after tax dollars to a Roth 401(k) which is up to the maximum contribution limit of $81,250 including catch up for a 60-63 year old person less the $58,250 employer and employee contributions.

Mega Backdoor Roth 401(k) Example for 50 to 59 year old person

For 2025, the person makes a salary deferral of $23,500 and a catch-up contribution of $7,500 = $31,000. The employer matches 3% of the salary deferral, or $705. The employee may contribute up to $45,795 to the Roth 401(k). 

Mega Backdoor Roth 401(k) Example for less than 50 years of age

For 2025, this person is eligible to make a salary deferral of $23,500. The employer matches 10% of the salary deferral of $2,350. The employee may contribute $44,150 after tax dollars to a Roth 401(k) which is up to the maximum contribution limit of $70,000 less the employee and employer contributions of $25,850.

What is a Mega Roth 401(k)?

A Mega "Roth 401(k)" is a add-on feature to a 401(k), 403(b) or governmental 457(b) plan where an employee can fund the Roth 401(k) account with some or all of the employee's elective deferrals as designated as Roth contributions (which are included in gross income), rather than traditional, pre-tax elective contributions. A Roth 401(k) must be permitted by the retirement plan documents. The combined amount contributed to all designated Roth accounts and traditional, pre-tax accounts in any one year for any individual is limited (under IRC Section 402(g)) is 23,500 for 2025, plus an additional $7,500 if you are age 50 or older at the end of the year, or $11,250 for folks 60, 61, 62, or 62, in 2025. Your employer (or you as self-employed or a business owner) can make matching contributions on your designated Roth contributions. The total retirement contributions for 2025 are capped at $70,000, $77,500 for aged 50 to 59, and $81,250 for those aged 60 to 63. 

The annual contribution limit (elective salary deferrals) for employees who participate in 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is increased to $23,500 for 2025, up from $23,000.

The catch-up contribution limit that generally applies for employees aged 50 and over who participate in most 401(k), 403(b), governmental 457 plans, and the federal government’s Thrift Savings Plan is $7,500 for 2025. Therefore, participants in most 401(k), 403(b), governmental 457 plans and the federal government’s Thrift Savings Plan who are 50 and older generally can contribute up to $31,000 each year, starting in 2025. Under a change made in SECURE 2.0, a higher catch-up contribution limit applies for employees aged 60, 61, 62 and 63 who participate in these plans. For 2025, this higher catch-up contribution limit is $11,250 instead of $7,500.

Types of employee contributions

Salary reduction / elective deferral contributions are pre-tax employee contributions that are generally a percentage of the employee's compensation. Some plans permit the employee to contribute a specific dollar amount each pay period. 401(k), 403(b) or SIMPLE IRA plans may permit elective deferral contributions.

Designated Roth contributions are a type of elective contribution that, unlike pre-tax elective contributions, are currently includible in gross income but tax-free when distributed. 401(k), 403(b) and governmental 457(b) plans can allow them. If a plan permits designated Roth contributions, it must also offer pre-tax elective deferral contributions.

After-tax contributions are contributions from compensation (other than Roth contributions) that an employee must include in income on his or her tax return. If a plan allows after-tax contributions, they are not excluded from income and an employee cannot deduct them on his or her tax return.

Catch-up contributions if permitted by a 401(k), 403(b), governmental 457(b), SARSEP or SIMPLE IRA plan, participants who are age 50 or over at the end of the calendar year can also make catch-up elective deferral contributions beyond the basic limit on elective deferrals.

Employer contributions

Employer matching contributions. If the plan document permits, the employer can make matching contributions for an employee who contributes elective deferrals (for example, 50 cents for each dollar deferred). Employer matching contributions can be discretionary (contributed in some years and not in others, depending on the company's decision) or mandatory, as in SIMPLE plans and Safe Harbor 401(k) plans.

Employer discretionary or non-elective contributions. If the plan document permits, the employer can make contributions other than matching contributions for participants. These contributions are made on behalf of all employees who are plan participants, including participants who choose not to contribute elective deferrals.