At The Money: The Mega Backdoor Roth

What It Covers

Dan LaRosa, retirement plan expert at Ritholtz Wealth Management, explains the Mega Backdoor Roth — a fully IRS-approved strategy allowing contributions up to $72,000 annually into a Roth account, tripling standard 401(k) limits for eligible employees and self-employed individuals.

Key Questions Answered

• •Contribution ceiling: The Mega Backdoor Roth raises total annual 401(k) Roth contributions from $24,500 to $72,000 by allowing after-tax contributions beyond standard limits. The strategy is IRS-approved, not a gray area, and works identically inside a 401(k) as a traditional backdoor Roth IRA.
• •Employer eligibility test: The strategy fails compliance testing if only owners and top earners participate. Plans work best at companies where a large percentage of employees earn over $150,000–$160,000 annually — tech firms and professional services firms like law, accounting, and medicine are prime candidates.
• •Solo practitioners get the easiest path: Self-employed individuals with owner-only 401(k) plans face zero compliance testing requirements, making the Mega Backdoor Roth straightforward to implement. Solo practitioners should prioritize setting this up, as there are no administrative hurdles that exist in multi-employee plans.
• •Automation is the key operational step: Fidelity offers daily automatic Roth conversion sweeps, eliminating manual tracking. Employees must activate this feature themselves. Other major providers including Schwab and Vanguard are catching up. Confirm sweep availability with your provider before making after-tax contributions to avoid misallocated funds.