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Mega Backdoor Roth

Updated: Aug 27, 2023

There are few retirement “secrets” that exist, but the Mega Backdoor Roth IRA is one of them.

Meme of hidden door

Like most personal finance topics, it sounds far more complicated than it is. Let’s walk through the what, why, and how:


The Mega Backdoor Roth IRA is an option which allows you to use your 401k to contribute approximately $40k per year to a Roth IRA while also making your regular pre-tax 401k contributions. This is not the same as a Roth 401k. A Roth 401k allows you to contribute in lieu of your pre-tax 401k. In other words, if you choose to max out your Roth 401k you are doing so at the expense of your pre-tax 401k, and vice versa. Meaning that the maximum you can contribute to your Roth 401k and pre-tax 401k is a total of $22.5k (2023 limit); however, the mega backdoor Roth IRA can be contributed to in addition to your pre-tax 401k. This means that you can potentially contribute $22.5k pre-tax to your 401k plus an additional $43.5k in after-tax contributions for a total of $66k.


Think about the statement above. Approximately $40k in annual Roth contributions. After 10 years, you would have contributed $400,000 and would have $637,496 in tax-free money, assuming a 10% return. If you never contributed again and let that money compound for 10 more years you would have $1,653,500 in tax-free money after a total of 20 years.


This is the part that’s overly complicated, so let’s walk through it step-by-step, and I will use Fidelity as my example 401k provider, but it will be similar for Vanguard and others:

  1. Determine eligibility: Do you have access to after-tax contributions as part of your 401k plan? This will be decided by your employer as part of your plan. If you don’t, then the journey ends here, or you can discuss it with your HR/benefits team. If yes, does your 401k plan allow in-service distributions (you can call your 401k provider to ask or review your 401k plan documents)? If the answer to both of these questions is “Yes,” then you can move to step 2.

  2. Increase your after-tax contribution: Some employers will allow after-tax contributions, but will limit the percentage that you can contribute. If you have access to after-tax contributions you should increase the percentage to as much as you can afford.

  3. Call your 401k provider: Request that they auto convert your after-tax contributions to a Roth IRA. All this means, is that they will take your after-tax 401k contributions and automatically move them into a Roth account. This is why it’s called a backdoor Roth and requires “in-service distributions.” Once this is automated by your 401k provider, it should take care of itself.

  4. Select your Roth investments: At this point your contributions should start to funnel to your Roth IRA account as part of your paycheck, but similar to a pre-tax 401k, the money still needs to be invested. Simply choose the mutual funds you want your Roth IRA contributions to be invested in.

  5. Do nothing!

Disclaimer: The information in this post is provided for your convenience only and is not intended to be treated as financial, investment, tax, or other advice. The information is intended to be educational and is not tailored to the investment needs of any specific individual.  It is also not intended to be relied upon as a forecast and is not an offer or solicitation to buy or sell any securities or to adopt any investment strategy.  The opinions expressed are those of the author.  Reliance upon the guidance and information in this presentation is at the sole discretion of the individual.

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