Table of Contents

What is a mega backdoor Roth?

How a mega backdoor Roth conversion works

Alternatives to mega backdoor Roth IRA

The bottom line

Want to speak with someone?

Still unsure and want to speak with someone? Set up a time here.

Schedule a call


Backdoor Roth IRA

How Mega Backdoor Roth Conversions Work

How Mega Backdoor Roth Conversions Work

Sep 12, 2022


5 min read

If an individual investor is a high earner with a retirement plan, in-service withdrawals, and able to supersize the contributions, then the mega Roth is worth exploring.

The mega backdoor Roth is a complex strategy for getting around tax rules that preclude high-income earners from accessing the benefits of a Roth account. It’s called mega because it allows much higher contributions than common backdoor Roth IRA conversions. While the mega Roth backdoor is currently allowed, it could be eliminated under the Build Back Better bill.

What is a mega backdoor Roth?

A mega backdoor Roth conversion uses a loophole that allows high-income earners to roll over funds from traditional IRAs and retirement plans into a Roth account, either a Roth IRA or Roth 401(k). Once the money is in a Roth, distributions taken in retirement—including earnings on original contributions—are tax free. 

Knowing how to open the mega backdoor requires a firm grasp of Roth conversion rules and what makes the mega type distinctive from other backdoor methods. 

Basic Roth IRA rules

. Roth IRAs were originally intended to encourage middle-income earners to save for retirement. The following rules apply:

  • Roth IRA savers can make annual after-tax contributions of up to $6,000 annually ($7,000 for individuals over 50). Only after-tax funds can be contributed to a Roth. 
  • There are no required minimum distributions, and when money is withdrawn, there are no taxes due. Roth IRA funds can be passed on to a beneficiary after death, too. 
  • High-income earners, however, face IRS income limits that bar access to a Roth IRA. The IRS defines high income as more than $144,000 a year for single filers and $214,000 for those filing jointly. 

The basic backdoor conversion strategy.

Thebackdoor to Roth IRAs cracked open in 2010, when the IRS lifted income restrictions on doing conversions between retirement accounts. The following changes were adopted:

  • High-income earners were still barred from making contributions, but now they could make qualified non-deductible (after-tax) contributions to a traditional IRA, which they could immediately convert to a Roth IRA.  
  • One could roll over any amount from other IRAs. However, pre-tax contributions and earnings would be subject to taxation upon conversion. The IRS uses a pro-rata formula to determine what portion is subject to taxation. Assets in 401(k) and 403(b) plans are exempt from this pro-rata rule. 

The mega backdoor uses a different key to get in—401(k) plans. Some 401(k) plans allow employees to add after-tax contributions. The individual can roll over those funds into a Roth IRA or Roth 401(k)—that’s a lot more money than can be contributed directly to an IRA. Keep in mind, not all 401(k) plans permit this.

How a mega backdoor Roth conversion works

The mega backdoor Roth 2022 conversion strategy typically uses a 401(k) plan as the starting point. But first, savers must verify if they even qualify to open the mega backdoor. Qualifications include:

  • You have an employer 401(k) or Roth 401(k) plan

    . Or if self-employed, you have a Solo 401(k) plan.

  • The 401(k) permits after-tax contributions

    . Not all 401(k) plans allow them. 

Retirement mistake finder

Take our retirement analyzer to find ways to better optimize your retirement investments.

Retirement Analyzer
  • The 401(k) permits in-service distributions of after-tax contributions

    . In-service means withdrawals are allowed while the saver is employed rather than retired. Not all plans permit this. 

How much can you convert in a mega backdoor Roth? 

The ultimate limit one can save in a workplace 401(k) for 2022 is $61,000 or $67,500 for over age 50. How much of that can be an after-tax contribution? This number varies based on an individual’s situation. Here’s how to determine it:

  • Start with the elective deferral limit of $20,500 in 2022 ($27,000 including catch-up contributions for over age 50). 
  • Then add any employer matches or nonelective contributions. 
  • Subtract this from the $61,000 or $67,500 total limit. The balance is the amount an individual can contribute with after-tax dollars. 

The mega backdoor process

Let’s assume an individual already has a Roth IRA or Roth 401(k). They would then need to do the following steps: 

  1. Max out the employee contribution amount to a qualified 401(k), 403(b), 457, or Solo 401(k) plan

    . The limit would be pretax contributions of $20,500 (or $27,000 for those over 50 years old).  

  2. Make after-tax contributions to the retirement plan

    . There are limits on how much you can contribute, depending on what the 401(k) allows and whether the employer matches contributions. 

  3. Request an immediate in-service withdrawal of the after-tax contribution

    . The 401(k) plan administrator would facilitate this. The IRS permits savers to split the withdrawal, sending only the after-tax contributions to the Roth IRA, while sending the investment earnings to a traditional IRA on a tax-deferred basis.  

  4. Roll over the money into a Roth IRA or Roth 401(k)

    . Once the money is in a Roth, it can grow tax-free. 

Alternatives to mega backdoor Roth IRA

The mega backdoor Roth isn’t for everyone. Several conditions must be met to make it happen. If those conditions don’t apply, there are other Roth strategies to consider. 

  • A high-income earner might qualify to go through the Roth front door and make direct after-tax contributions to a Roth IRA. 
  • If the retirement plan forbids in-service withdrawals or in-plan rollovers, an individual might be able to use the mega backdoor after leaving their job. 
  • A high earner who doesn’t have a retirement plan that allows after-tax contributions or in-service withdrawals, might consider a regular backdoor Roth IRA conversion instead. 
  • If a saver’s employer offers a Roth 401(k), individuals can make direct contributions to that, up to the allowable limits. 

The bottom line

Mega Roth backdoor conversions are harder to navigate than regular backdoor IRA conversions from IRAs or other retirement accounts. If the individual investor is a high earner with a retirement plan that allows after-tax contributions and in-service withdrawals and has enough extra cash to supersize the contributions, then the mega Roth could be worth exploring.

FYI: Try Titan’s free Roth IRA Calculator to project how much your Roth IRA will give you in retirement.

At Titan, we are value investors: we aim to manage our portfolios with a steady focus on fundamentals and an eye on massive long-term growth potential. Investing with Titan is easy, transparent, and effective.

Get started today.


Certain information contained in here has been obtained from third-party sources. While taken from sources believed to be reliable, Titan has not independently verified such information and makes no representations about the accuracy of the information or its appropriateness for a given situation. In addition, this content may include third-party advertisements; Titan has not reviewed such advertisements and does not endorse any advertising content contained therein.

This content is provided for informational purposes only, and should not be relied upon as legal, business, investment, or tax advice. You should consult your own advisers as to those matters. References to any securities or digital assets are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Furthermore, this content is not directed at nor intended for use by any investors or prospective investors, and may not under any circumstances be relied upon when making a decision to invest in any strategy managed by Titan. Any investments referred to, or described are not representative of all investments in strategies managed by Titan, and there can be no assurance that the investments will be profitable or that other investments made in the future will have similar characteristics or results.

Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others. Please see Titan’s Legal Page for additional important information.

Three Things, a newsletter from Titan

Stay informed on the most impactful business and financial news with analysis from our team.

You might also like

How To Do a Backdoor Roth IRA Conversion

Learn how Backdoor Roth conversions can be a savvy retirement planning solution for high-income earners hoping to benefit from the tax-free growth potential.

Read More

Will the Backdoor Roth Conversion Go Away in 2022?

An open question is whether Backdoor Roth strategies will remain legal. Learn about the range of possible outcomes and how investors might consider talking to an advisor.

Read More

What Exactly Is a Backdoor Roth IRA?

The backdoor Roth IRA is a type of retirement savings vehicle, although it is a process more complicated than it would at first appear. Learn more about how it works.

Read More

Ready to become a client?

It's time to focus on the future of your wealth.

iOS App Store

Google Play

© Copyright 2023 Titan Global Capital Management USA LLC. All Rights Reserved.