High Earners Can Annually Channel Up to $70,000 into Roth Accounts via 401(k) Strategy

High-income earners, typically ineligible for direct Roth IRA contributions due to income limits, can potentially funnel up to $70,000 annually into Roth accounts through a strategy known as the "mega backdoor Roth." This financial maneuver, highlighted by Ankur Nagpal in a recent social media post, leverages specific 401(k) plan features to allow for significant tax-advantaged retirement savings.

The strategy begins with individuals maximizing their standard 401(k) contributions, which are $23,500 for those under 50 in 2025, or $31,000 for those aged 50 and older. After reaching these limits, participants then make additional after-tax contributions to their 401(k) plan. These after-tax contributions are distinct from pre-tax or Roth 401(k) contributions.

The crucial next step involves converting these after-tax 401(k) funds into a Roth account, either a Roth IRA or an in-plan Roth 401(k). This conversion allows the money to grow tax-free and be withdrawn tax-free in retirement, mirroring the benefits of a direct Roth contribution. The total annual limit for all 401(k) contributions, including employer contributions and after-tax amounts, is $70,000 for 2025 for those under 50.

Eligibility for the mega backdoor Roth depends heavily on the employer's 401(k) plan, which must permit after-tax contributions and allow for in-service distributions or conversions while still employed. Many plans do not offer these specific features, making the strategy inaccessible to all high earners. For instance, single taxpayers earning $165,000 or more, and married couples filing jointly earning $246,000 or more in 2025, are barred from direct Roth IRA contributions.

While complex, the mega backdoor Roth offers a powerful avenue for substantial tax-free growth in retirement savings. Financial experts advise individuals considering this strategy to consult with a qualified financial advisor or tax professional. This ensures proper execution and understanding of potential tax implications, particularly concerning any earnings accrued on after-tax contributions before conversion.