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You are maxing out your 401(k). You may also be using a Backdoor Roth IRA. But you still have additional cash flow that you would like to invest for retirement.
Are you out of tax-advantaged options?
Not necessarily.
Depending on your employer’s retirement plan, you may be eligible for a strategy commonly known as the Mega Backdoor Roth.
Despite its name, the Mega Backdoor Roth is not a separate type of account. It is a two-step strategy:
- Make voluntary after-tax contributions to your employer-sponsored retirement plan.
- Convert those contributions to the plan’s Roth 401(k) account or, when permitted, roll them into a Roth IRA.
This is different from simply selecting the Roth option for your regular 401(k) contributions. It is also different from a standard Backdoor Roth IRA, which begins with a non-deductible traditional IRA contribution.
For 2026, the employee 401(k) contribution limit is $24,500. However, the total defined-contribution-plan limit, including regular employee contributions, employer contributions and voluntary after-tax contributions—is generally $72,000, or 100% of compensation if lower. Catch-up contributions are generally outside this limit. [1]
Consider this hypothetical example:
$72,000 total plan limit
– $24,500 regular employee contribution
– $10,000 employer match
= $37,500 of potential after-tax contribution capacity
In this example, the employee may be able to contribute an additional $37,500 after tax and then convert it to Roth.
The actual amount will depend on the employer contribution, the retirement plan’s provisions and any limitations imposed by the plan.
Why Can This Be So Valuable?
Once the money is properly converted, it can benefit from Roth tax treatment, including the potential for tax-free growth and tax-free qualified withdrawals.
For high-income earners who are already saving the maximum through their traditional or Roth 401(k), the Mega Backdoor Roth may provide another way to:
- Accumulate additional Roth assets
- Improve future tax diversification
- Reduce reliance on fully taxable retirement distributions
- Create greater flexibility when planning retirement income
The Important Catch
Not every retirement plan allows this strategy.
Your plan must generally permit both:
- Voluntary after-tax employee contributions
- In-plan Roth conversions or in-service rollovers
After-tax contributions are also not automatically Roth contributions. Earnings that accumulate before the conversion are generally considered pre-tax money and may be taxable when converted. Converting contributions frequently—or automatically when the plan offers that feature—may help limit the amount of taxable earnings that accumulate. [2][3]
What Should You Ask Your Employer?
Contact your benefits department or plan administrator and ask:
- Does our plan allow voluntary after-tax contributions beyond the regular 401(k) limit?
- Does it permit in-plan Roth conversions?
- Can after-tax contributions be rolled into a Roth IRA while I am still employed?
- Can conversions happen automatically after each contribution?
The Bottom Line
For the right investor, a Mega Backdoor Roth can create meaningful additional retirement savings capacity. However, the strategy is highly dependent on the employer’s plan and should be coordinated with the employee’s broader financial and tax plan.
At Kerr Wealth Advisors, we can review your retirement plan, help estimate your potential contribution capacity and work with your tax professional to determine whether the strategy fits your circumstances.
H. Brad Kerr IV, CRPC®, RIS
Vice President/Wealth Management
Assistant Branch Manager / Financial Advisor
Kerr Wealth Advisors of Janney Montgomery Scott LLC
215.619.3926 | bkerr4@janney.com
This material is provided for educational purposes and is not intended as individualized tax, legal or investment advice. Plan provisions and individual circumstances vary. Please consult your plan administrator and independent tax advisor before implementing this strategy.
Source Notes
[1] The IRS lists the 2026 employee deferral limit as $24,500 and the defined-contribution annual-additions limit as the lesser of $72,000 or 100% of compensation. Catch-up contributions generally do not count against the $72,000 limit. IRS
[2] The IRS explains that after-tax retirement-plan contributions can potentially be directed to a Roth IRA, while associated earnings are treated as pre-tax amounts. IRS
[3] Whether an in-plan Roth rollover is available depends on the employer’s plan, and previously untaxed amounts included in a conversion are generally taxable in the year of conversion. IRS
Janney Montgomery Scott LLC Financial Advisors are available to discuss all considerations and risks involved with various products and strategies presented. We will be happy to provide a prospectus, when available, and other information upon request. Janney Montgomery Scott LLC, its affiliates, and its employees are not in the business of providing tax, regulatory, accounting, or legal advice. These materials and any tax-related statements are not intended or written to be used, and cannot be used or relied upon, by any taxpayer for the purpose of avoiding tax penalties. Any such taxpayer should seek advice based on the taxpayer’s particular circumstances from an independent tax advisor. Janney Montgomery Scott LLC is a member of the New York Stock Exchange, Financial Industry Regulatory Authority and the Securities Investor Protection Corporation.
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