Unlock Hidden Roth Contributions Through Your 401(k) or 403(b)
Roth IRA contribution limits are frustrating—especially when you’re a high earner.
But there’s a way around it that most people miss.
If your employer offers the right retirement plan, you can contribute far more than the standard Roth IRA limit—legally and efficiently.
This strategy is called the Mega Backdoor Roth, and it works through your 401(k) or 403(b).
Let’s break it down.
Understand the Limits First
For 2025, here’s what the IRS allows:
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$23,000 employee contribution limit (pre-tax or Roth)
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$7,500 catch-up if you’re 50 or older
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$69,000 total contribution limit (including employer match, profit sharing, and after-tax contributions)
That means you could potentially contribute an extra $46,000 (or more) in after-tax dollars, depending on your employer match.
Example:
You’re 45 and earn $250,000.
You contribute $23,000 to your traditional 401(k).
Your employer contributes $10,000 in matching.
That leaves $36,000 of unused space under the $69,000 cap.
You can fill that space with after-tax contributions.
What Is the Mega Backdoor Roth?
It’s a two-step strategy:
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Contribute after-tax dollars to your 401(k) or 403(b) beyond the regular limit
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Convert those after-tax dollars to a Roth account—either inside the plan or via a rollover to a Roth IRA
The result?
More money in a Roth account where:
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Future growth is tax-free
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Qualified withdrawals are tax-free
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There are no required minimum distributions (RMDs) in a Roth IRA
Example:
You add $30,000 in after-tax contributions.
Your plan allows in-plan Roth conversions.
You move the $30,000 into the Roth portion of your 401(k) immediately.
There’s no tax owed because you’re only converting after-tax dollars.
Avoiding common tax mistakes is crucial when executing advanced strategies like the Mega Backdoor Roth. For insights on pitfalls to steer clear of, consider reading Common Tax Mistakes to Avoid this Filing Season.
Why High Earners Use This Strategy
If your income exceeds the Roth IRA threshold (around $161,000 for singles and $240,000 for joint filers in 2025), you can’t contribute to a Roth IRA directly.
This strategy bypasses those income limits entirely.
You’re using your employer plan to fund a Roth indirectly—and often with much higher limits.
Example:
You earn $300,000.
You’re ineligible to contribute to a Roth IRA.
But your 401(k) allows $40,000 in after-tax contributions.
You convert those to Roth—legally building tax-free retirement savings that would otherwise be off-limits.
Proactive tax planning is essential to maximize the benefits of strategies like the Mega Backdoor Roth. Explore more in Tax Planning Tips for Individuals and Business Owners.
Real-World Example
Let’s say:
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You contribute $23,000 to a pre-tax 401(k)
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Your employer adds $10,000
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You contribute an extra $36,000 after-tax
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You immediately convert the $36,000 to Roth
If this money grows at an average of 7% annually, after 20 years it becomes $139,135—completely tax-free in retirement.
That’s just from one year of strategy.
Now imagine doing this every year for 10 years. That’s over $1 million in potential tax-free income.
Plan Requirements: What to Look For
Your employer plan must allow two things:
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After-tax contributions beyond the employee limit
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In-service Roth conversions or rollovers of after-tax funds
Without both, the strategy won’t work.
Example:
You check your plan. It allows after-tax contributions, but doesn’t allow in-service rollovers.
You won’t be able to move funds to a Roth IRA until you leave the company—delaying your tax-free growth.
That plan may not be a good fit for this strategy.
“Legislative changes like the SECURE Act 2.0 have implications for retirement strategies. Learn more in Understanding the SECURE Act 2.0: What You Need to Know for 2023 and Beyond.
Common Mistakes to Avoid
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Waiting too long to convert after-tax contributions (growth becomes taxable if not handled quickly)
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Assuming all 401(k)s allow this (many don’t)
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Failing to track your basis when rolling over to a Roth IRA
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Not maxing out regular contributions first
Example:
You contribute $20,000 in after-tax funds and forget to convert.
Those dollars grow to $25,000 before you roll them into a Roth IRA.
Now you owe tax on $5,000 of growth—avoidable if you had converted sooner.
Should You Work With a Tax Pro or Advisor?
Yes—especially for the first time.
Why?
Because this strategy requires:
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Understanding how your plan handles rollovers
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Minimizing taxes on any gains before the Roth conversion
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Coordinating with your overall tax plan
A good advisor can help structure it so the conversion is nearly tax-free.
Example:
A CPA helps you time your contributions and conversions monthly.
You minimize any gains on after-tax dollars before the conversion.
You avoid unnecessary tax exposure and keep your Roth growth 100% tax-free.
Ideal Candidates for This Strategy
You should seriously consider this if:
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You’re maxing out your 401(k) or 403(b) every year
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You have high disposable income
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You’ve already built a solid emergency fund
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You want to maximize tax-free income in retirement
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You expect future tax rates to rise
Example:
You’re a physician earning $400,000 per year.
You want to retire early and limit tax drag in retirement.
You contribute $40,000 per year in after-tax money to a Mega Backdoor Roth.
After 15 years, that adds over $900,000 in tax-free assets—a huge advantage when you’re no longer working.
Action Steps
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Check your plan documents or call HR
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Confirm contribution and rollover rules
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Calculate how much room is left under the $69,000 limit
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Contribute after-tax dollars
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Immediately convert those funds to Roth
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Repeat annually
Example:
You review your year-to-date 401(k) contributions in October.
You’ve contributed $23,000 and received $12,000 from your employer.
You still have $34,000 of space left under the $69,000 cap.
You make an after-tax contribution and convert it in November—locking in the Roth.
Final Thought
Are you just contributing to your 401(k)—or are you maximizing it?
The Mega Backdoor Roth isn’t a loophole.
It’s an IRS-approved strategy to grow your retirement savings tax-free.
If your plan allows it, take advantage.
This move could add hundreds of thousands to your Roth balance over time.
Don’t leave that on the table.
At Provident CPAs, we specialize in helping clients adapt to changing economic conditions. Whether you’re a business owner or an individual looking to optimize your tax strategy, our team is here to guide you through the complexities of today’s tax landscape. Contact us today to learn more about how we can help you achieve financial independence, even in the face of economic uncertainty.