The Mega Backdoor Roth

The $47,500 line item your plan is not advertising

Open your retirement portal and you will see two numbers: the $24,500 you defer and whatever your employer adds. Most attendings treat that as the ceiling. It is not. The actual ceiling for 2026, set by section 415(c) and announced in IRS Notice 2025-67, is $72,000 in total annual additions per employer plan. Your deferral and a typical match fill perhaps half of it. The remainder — up to $47,500 if your employer contributes nothing — is space that some plan documents let you fill with after-tax employee contributions and then convert to Roth. That is the mega backdoor Roth: not a loophole, but a pair of optional plan features that many hospital systems and universities adopted and never announced. Whether you have access is not a question about the tax code. It is a question about your summary plan description. This module walks through the arithmetic, the two-step mechanics, the earnings trap that catches people who delay, and the three questions that settle in one email whether your plan qualifies.

Mega backdoor Roth

A two-step strategy: contribute after-tax (non-Roth) dollars to your employer plan above the deferral limit, then move them to Roth through an in-plan Roth conversion or an in-service rollover to a Roth IRA.

Your plan can hold employee money in up to three contribution sources. Pre-tax and Roth elective deferrals share the $24,500 limit under section 402(g). After-tax (non-Roth) contributions are a third source: they are not elective deferrals under section 402(g)(3), so they do not count against the $24,500 — they count only against the $72,000 overall limit of section 415(c). Left alone, that third bucket is mediocre. Contributions come back tax-free, but every dollar of growth is taxed as ordinary income at withdrawal. The strategy is to not leave it alone. Step one: contribute after-tax dollars. Step two: move them to Roth, either through an in-plan Roth conversion to the plan's designated Roth account under section 402A(c)(4), or through an in-service rollover to a Roth IRA. Once converted, all future growth is tax-free. The sooner step two follows step one, the less taxable earnings ride along.

Why it matters: A physician who fills $30,000 of after-tax space each year and converts promptly moves $30,000 annually into Roth on top of the $24,500 deferral and a $7,500 backdoor Roth IRA — roughly four times the Roth accumulation available through the IRA route alone, with no income phase-out to manage.

$72,000 minus what you and your employer already put in

A 44-year-old cardiologist has $300,000 of plan compensation. She defers the full $24,500. Her employer provides a 4% match: $12,000. Her plan accepts after-tax contributions and offers automatic in-plan Roth conversion each pay period.

Bottom line: For 2026 this cardiologist moves $35,500 into Roth beyond her deferral — nearly five times the $7,500 IRA backdoor — and a physician whose employer contributes nothing could move up to $47,500.

The earnings meter starts running the day you contribute

Two failure modes cost real money. First, the missing second step. If your plan accepts after-tax contributions but offers neither in-plan Roth conversion nor in-service distribution of that source, the dollars are stranded until you separate. Their earnings compound tax-deferred and then come out as ordinary income — often a worse outcome than a plain taxable account, where long-term gains and qualified dividends receive preferential rates. Second, the delay tax. Between contribution and conversion, the after-tax subaccount grows, and only the growth is taxable at conversion. Wait a year in a rising market and you have manufactured a tax bill that same-day conversion would have avoided. Be precise about what this is not: it is not the IRA pro-rata rule. Form 8606 aggregates your traditional, SEP, and SIMPLE IRA balances and is irrelevant to your employer plan. The plan's after-tax subaccount has its own mechanics under IRS Notice 2014-54 — any distribution or conversion from that source carries its proportionate share of the subaccount's earnings. You cannot skim out contributions and leave the earnings behind, though on a rollover out of the plan you may direct contributions to a Roth IRA and earnings to a traditional IRA.

How to avoid it: Confirm the second-step feature in writing before your first after-tax dollar. Set the conversion to run automatically each pay period if the plan allows it; otherwise, calendar a monthly manual conversion. Expect a small taxable earnings figure on each conversion and report the Form 1099-R when it arrives. If your plan offers no conversion and no in-service rollover of the after-tax source, do not fund it — direct that money to your taxable account instead.

Three questions that settle it in one email

Plan documents do not use the phrase mega backdoor Roth. They say "after-tax contributions," "in-plan Roth rollover," or "in-service distribution," scattered across different sections. You need the plan's actual terms, in writing, before payroll changes anything.

It is Sunday evening. Your summary plan description is open on your laptop. The phrase "after-tax" appears once, in a table of contribution sources, with no explanation. Your portal shows a Roth 401(k) election you have never used. Open enrollment closes in two weeks.

Check yourself: the conversion clock

The mechanics only pay if the sequencing is right. One question before the summary.

Your after-tax space: claimed or forfeited, every year

• The 2026 section 415(c) limit is $72,000 per employer plan; your $24,500 deferral and employer contributions rarely fill it, and after-tax employee contributions can occupy the remainder.
• The strategy requires two plan features: an after-tax (non-Roth) contribution source, and either in-plan Roth conversion or in-service rollover of that source.
• After-tax contributions convert tax-free; earnings accrued before conversion convert as ordinary income, so convert promptly — automatically each pay period if the plan allows.
• The IRA pro-rata rule on Form 8606 does not apply to the plan's after-tax subaccount, and the regular $7,500 backdoor Roth IRA remains available alongside this strategy.
• If the plan lacks the conversion or in-service rollover feature, do not fund the after-tax source; a taxable account treats the growth better.

Do this next: This week, email your benefits office the three questions: does the plan accept after-tax (non-Roth) contributions, does it allow in-plan Roth conversion or in-service rollover of that source, and can conversions run automatically each pay period.