Using Mega-Backdoor Roth to Enhance Your Retirement


The mega-backdoor Roth is one of the best employee benefits available for high-earning tech professionals planning their financial future.

So if you are looking for answers to questions like…

  • What is the mega-backdoor Roth?
  • What are step-by-step instructions for how to set up the mega-backdoor Roth?
  • When should I consider the mega-backdoor Roth? When should I not consider the mega-backdoor Roth?

… then this guide is for you!

This guide is to help you understand the mega-backdoor Roth so that you can save more tax-efficiently and minimize taxes down the road in retirement.

What is the mega-backdoor Roth?

The mega-backdoor Roth strategy involves making after-tax 401(k) contributions and then converting those funds to a Roth IRA or Roth 401(k). This strategy allows high-earners to save more aggressively and tax-efficiently for retirement.


Does my company offer the mega-backdoor Roth?

The best way to confirm that your company offers the mega-backdoor Roth is by reviewing your 401(k) plan summary description. The process of reviewing a 30-80 page plan summary description is a bit of a cumbersome task, so if you are unsure, a best practice is to ask your 401(k) plan administrator or financial planner.

Many tech companies offering the mega-backdoor Roth, including: Alphabet (Google), Amazon, Apple, Dell, IBM, Meta (Facebook), Microsoft, Netflix, Oracle, Uber, VMware, and Zoom.

Here’s a more comprehensive list of companies offering the mega-backdoor Roth.


Step-by-step instructions for how to set up the mega-backdoor Roth

Step 1: Confirm that your 401(k) plan allows for after-tax contributions.

Step 2: Max out your pre-tax or Roth 401(k) elective deferrals.

  • $20,500 for individuals under age 50 in 2022.
  • $27,000 for individuals age 50 & older in 2022.

Step 3: Start with $61,000 ($67,500 if age 50 & older) in 2022 and subtract out $20,500 ($27,000 if age 50 & older) for elective deferrals and your company match. You can contribute up to this amount in after-tax contributions.

Step 4: Contact your 401(k) plan administrator to set-up in-service conversions or in-service distributions. Ideally, your plan allows for this to take place automatically!

Step 5: Elect for after-tax contributions for your 401(k).


How much can an individual put into a 401(k) in 2022?

In 2022, the defined contribution plan limit is $61,000. The defined contribution plan limit is $67,500 for individuals age 50 & older.

  • An individual can make a pre-tax or Roth elective deferral 401(k) contribution of $20,500.
  • An individual age 50 & older can contribute an additional $6,500.
  • An employer may offer a company match.
  • An individual can make after-tax contributions up to the defined contribution plan limit as follows: $61,000 – $20,500 elective deferrals – company match = after-tax.
  • An individual age 50 & older can make after-tax contributions up to the defined contribution plan limit as follows: $67,500 – $20,500 elective deferrals – $6,500 age 50 & older – company match = after-tax.

2022 401(k) Contribution Limit

Source: 2022 Important Planning Numbers


When should I consider the mega-backdoor Roth?

  • Your 401(k) plan allows after-tax contributions.
  • Your 401(k) plan allows in-service conversions to Roth 401(k) or distributions to Roth IRA.
  • You maxed out your pre-tax or Roth 401(k) elective deferral and have additional funds to save for retirement.

When should I consider using a mega-backdoor Roth instead of saving in a taxable account?

  • Saving in a Roth means tax-free earnings. Saving in a taxable account means paying taxes on interest, dividends, and capital gains.
  • You are saving toward retirement and not for shorter-term financial goals (ex. home, college).
  • One of the best benefits of this strategy setting yourself up for better tax diversification.

When should I not consider the mega-backdoor Roth?

  • You are not going to max out your 401(k) elective deferral.
  • You have other financial goals than retirement that need more immediate attention for savings.
  • If your 401(k) plan does not allow in-service conversions or distributions, then you will need to wait until you leave your job to complete a Roth conversion. Waiting makes this strategy much less effective because after-tax earnings are taxed at ordinary income when converted.

What are the tax consequences of the mega-backdoor Roth?

After-tax contributions have already been taxed and therefore are nontaxable once the Roth conversion takes place.

Investment earnings on after-tax contributions are taxed at ordinary income rates at the time of the in-service conversion to Roth 401(k) or distribution to Roth IRA. This makes it very important to make sure your plan allows in-service conversions or in-service distributions. One of the best strategies for the mega-backdoor Roth is to confirm automatic in-service conversions.

Investments grow tax-deferred in a Roth IRA or Roth 401(k). Qualified distribution withdrawals during retirement are tax-free from a Roth IRA or 401(k).


Mega-backdoor Roth Case Studies


Rebecca (60) at Dell

Rebecca (60) is a distinguished engineer for Dell. Dell’s 401(k) matches 100% of contributions, up to 6%, up to a maximum of $7,500. Rebecca earns $300,000 per year and wishes to save more for retirement with the mega-backdoor Roth strategy.

Rebecca contributes $27,000 toward pre-tax 401(k) elective deferral plus the 50 & older catch-up. Dell matches $7,500. Rebecca is eligible to save an additional $33,000 in after-tax savings toward the mega-backdoor Roth.

Dell Mega-Backdoor Roth Example

Eric (45) at Meta (Facebook)

Eric is an executive for Meta. Meta’s 401(k) matches dollar for dollar up to $10,250. Eric earns $250,000 per year and wishes to save more for retirement with the mega-backdoor Roth strategy.

Eric contributes $20,500 toward pre-tax 401(k) elective deferral. Meta matches $10,250. Eric is eligible to save an additional $30,250 in after-tax savings toward the mega-

Meta Facebook Mega-Backdoor Roth Example

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