No One Told Me I Might Be Able to Put Money Into a Roth IRA Even Though I Make Too Much.
You know about traditional 401(k) contributions.
You know about Roth IRAs. You thought you made too much money to qualify for one.
End of story, right?
Not necessarily.
There's a way some people with higher incomes put thousands of extra dollars into Roth accounts, even when their income is too high to contribute directly to a Roth IRA.
It's called a mega backdoor Roth.
Terrible name. Potentially useful strategy.
So how does this work?
Your 401(k) might have an option nobody mentioned when you signed up.
You already know about regular 401(k) contributions. Maybe you even have a Roth 401(k) option.
But some employers allow a third kind of contribution: extra money you put into your 401(k) after you've already paid income tax on it.
Here's where things get interesting.
If your employer's plan allows it, you might be able to move those extra after-tax dollars into a Roth IRA or Roth 401(k).
And unlike direct Roth IRA contributions, this strategy doesn't have an income cutoff.
What's the catch?
Your employer's 401(k) has to allow it.
First, the plan must permit additional after-tax contributions. That's different from regular Roth 401(k) contributions.
Second, the plan needs to allow those dollars to move into Roth through an eligible conversion or rollover.
And there's still an annual limit on how much goes into your 401(k) from all sources combined, including employer contributions.
So this isn't unlimited Roth money.
Do you pay taxes twice?
Generally, no.
You already paid income tax on the money you contributed after tax.
When those contribution dollars are properly moved into Roth, they generally aren't taxed again.
But if the money earned investment returns before the conversion, moving those earnings into Roth generally creates taxable income.
That's one reason the details matter.
Wait. What's the Difference Between All Three?
There are three ways people talk about putting money into Roth.
The names sound similar, but the rules are different.
| Direct Roth IRA | Backdoor Roth | Mega backdoor Roth | |
|---|---|---|---|
| Where the money starts | Money you contribute directly | Traditional IRA | After-tax money in an employer retirement plan |
| How it reaches Roth | Direct contribution | Roth IRA conversion | In-plan conversion or eligible rollover |
| Income limit | Yes | No income limit on conversions | No income limit on conversions |
| Employer permission | No | No | Yes, the plan must permit the required transactions |
| Biggest complication | Income eligibility | Pro-rata tax rule | Employer plan rules and contribution limits |
A regular Roth IRA contribution is straightforward if your income qualifies.
A standard backdoor Roth uses a traditional IRA, followed by a conversion.
A mega backdoor Roth uses your workplace retirement plan.
And the mega version only works if your plan offers the necessary features.
How do you find out if you're eligible?
Ask your 401(k) administrator three questions:
- Does our plan allow voluntary after-tax contributions beyond regular employee contributions?
- Does our plan allow in-plan Roth conversions or eligible in-service distributions to a Roth IRA?
- How much room do I have left under this year's total contribution limit?
If the answer to the first two questions is yes, you've found something worth looking into.
If not, having a regular Roth 401(k) option doesn't automatically give you access to this strategy.
The Bottom Line
You might make too much money to contribute directly to a Roth IRA.
That doesn't necessarily mean you're shut out of putting more money into Roth.
Your employer's retirement plan might have another route.
And the first step isn't hiring someone to set up a complicated strategy.
It's asking your 401(k) administrator three questions.