For business owners and high-income professionals looking to maximize their retirement savings, traditional options like a 401k or a Roth IRA often come with frustrating contribution limits. But what if there was a way to contribute significantly more to a tax-advantaged account? The mega backdoor Roth strategy could allow you to do so. If your 401(k) plan allows it, this strategy lets you go beyond the usual contribution limits and move extra savings into a Roth account for tax-free growth.
Backdoor Roth Strategy
Congress has instituted rules around how much people can put into a Roth IRA. Married couples with income less than $236,000 in 2025 ($150,000 for single filers), then they can contribute a maximum of $7,000. For those over $246,000 ($165,000 for single filers), they cannot contribute to a Roth IRA directly. This is when the Backdoor Roth Strategy enters the picture. Given the right circumstances, you can make a $7,000 non-deductible contribution to a traditional IRA and then convert those funds into a Roth IRA afterward. Effectively contributing to a Roth “through the backdoor”.
While $7,000 is nice, for many professionals and business owners with higher incomes, it may barely feel like a drop in the bucket. As a result, many business owners should focus their attention on a 401k. In 2025, the maximum employee contribution is $23,500 for those under 50, which most people are aware of. However, the maximum total contribution for a 401k is $70,000. This means that $70,000 – $23,500 = $46,500 more can come from either employer contributions or from after-tax contributions. For business owners who have no employees, this 401k plan can be simpler because you can max out your Solo 401k on the employee and employer side.
For professionals or business owners with employees, funding the remaining $46,500 can be slightly more complicated due to the rules around 401k contributions with employees involved. Regardless, $70,000 can feel much better in terms of savings than the $7,000 Roth IRA contribution. Especially for a married couple who both make multiple 6-figures, the retirement savings can add up. So, when is the mega backdoor Roth strategy going to work?
Mega Backdoor Roth Strategy
For this strategy to work, the 401k plan needs a few important qualifications to move forward. First, the plan needs to allow after-tax contributions. This means after you max the $23,500 employee side, the plan must permit you to contribute the remaining $46,500 as after-tax contributions. The after-tax contributions must account for any match you receive as well. For example, those with $20,000 matching employer contributions would only be able to contribute $26,500 in after-tax contributions.
Second, the plan must offer either in-plan Roth conversions or in-service distributions to a Roth IRA. Once after-tax contributions are made, you need a way to convert those funds into a Roth. If the plan offers a Roth 401k option, make sure the company allows you to convert only the after-tax funds into that Roth 401k. If there is no Roth option, then make sure the plan allows for in-service distributions that let you roll those after-tax dollars into a Roth IRA.
With all these moving pieces, it could be especially important to ask your plan administrator or HR department if this strategy is available to you. There are many testing requirements for 401k plans that companies must adhere to. These tests are usually the reason why the mega backdoor Roth strategy may be unavailable, so it is important to ask. For business owners, it may be relatively easier to get access to this strategy since they can likely change their plan appropriately.
Order of Operations
Two of the primary goals of retirement savings are to save on taxes and save for retirement. Therefore, if you have sufficient income and want to explore the maximum contributions to retirement accounts, the mega backdoor Roth strategy could be a possible option. Contributions can fall into one of three buckets: pre-tax, post-tax, and Roth contributions. In general, we do not want to fill the post-tax bucket but use it to fund the Roth bucket.
To contribute successfully, think about your contributions in a few steps. First, max out the $23,500 employee contributions. These will likely be normal pre-tax contributions into a traditional 401k to get the tax deduction. This will also take advantage of any match provided by the company. Let’s say the company provides a $15,000 matching employer contribution. Next, contribute after-tax up to the $70,000 limit, which would be $31,500 in this case.
Then convert that $31,500 either into a Roth 401k within the plan or roll it into a Roth IRA. Functionally, the Roth 401k may be slightly preferable to process, but the Roth IRA produces the same result. It is very important to check this step off and not forget about the after-tax contributions. You do not get a tax deduction for the after-tax contributions, and any funds that are not converted to a Roth would be taxed if they were withdrawn later on. So, in essence, you get the worst versions of a traditional IRA and a Roth IRA, where funds are taxed on the way in and on the way out.
Lastly, fund your Roth IRA. If your income is too high to directly contribute to the Roth IRA, run the backdoor Roth strategy to add $7,000 into your Roth. At this point, you’ve saved $23,500 + $15,000 match + $31,500 + $7,000 for a total of $77,000. $23,500 of which went into pre-tax accounts and $53,500 into a Roth. That is the power of the mega backdoor Roth strategy.
Retirement Savings
The backdoor Roth and mega backdoor Roth strategies can be useful for some individuals looking to save for retirement and manage taxes. At the end of the day, it is important to make sure your overall retirement goals align with your savings first and then focus on maximizing contributions. The mega backdoor Roth strategy could be a great tool for high-income earners and owners who want to contribute more to their Roth accounts. Work with your financial team to make sure this is a viable strategy for you.
TC Falkner 