There's a retirement move that lets you stash tens of thousands of dollars into a tax-free account each year — far more than the standard $7,000 IRA limit or the $23,000 most people put in a 401(k).
It's called the mega backdoor Roth, and it's perfectly legal, but most Americans have never heard of it.
Here's the catch: your employer's plan has to allow it.
If it does, you could potentially move as much as $69,000 into Roth territory in 2024, counting your own contributions, your employer's match, and after-tax dollars you convert.
First, you max out your regular 401(k) contributions.
Then, if your plan allows after-tax contributions, you keep adding money beyond that limit.
Finally, you convert those after-tax dollars into a Roth account — either inside your 401(k) or by rolling them into a Roth IRA.
Because Roth money grows tax-free and comes out tax-free in retirement.
For high earners who can't contribute to a Roth IRA directly due to income limits, this is one of the few remaining ways to build a sizable tax-free bucket.
The tax bill on the conversion is small, since you've already paid income tax on the after-tax contributions.
The main cost is on any earnings those dollars generated before you convert — so the faster you move the money, the less you owe.
According to retirement industry surveys, only about a fifth of 401(k) plans allow after-tax contributions, and far fewer make in-plan Roth conversions easy.
That means many savers simply can't use the strategy.
If you're self-employed or run a small business, a solo 401(k) can open the door.
Some providers now build the after-tax option right in, letting owners funnel far more into Roth savings than a standard IRA would ever allow.
For everyone else, the first step is checking your plan's summary description document, usually available through your HR portal or 401(k) provider.
Search for "after-tax" and "in-plan Roth conversion." If both appear, you may have access.
Some plans limit how often you can convert, or cap after-tax contributions at a low percentage of pay.
Run the numbers before assuming it's worth it.
There's also the five-year rule to keep in mind.
Roth conversions generally need to season for five years before you can withdraw the converted amount penalty-free, so this works best for money you won't touch for a while.
The mega backdoor Roth isn't a magic trick, and it won't help if your budget is already stretched.
But for disciplined savers with the right plan, it's one of the most powerful — and least publicized — tools in the tax code.
My take: this is a classic example of a benefit that quietly favors people whose employers offer generous plans.
If yours does, it's worth a call to your HR department this week.
Final Thoughts
If it doesn't, ask whether the plan might add the feature — because the gap between what's allowed and what's offered is where most of the money hides.