The Mega Backdoor Roth: After-Tax 401(k) Contributions Explained

September 9, 2026

The mega backdoor Roth is commonly described as a way to move a substantial amount into a Roth account each year. What determines whether any of it is available, however, is narrower than the amount involved. It is the plan document.

Two specific plan features have to be present. Neither is standard, and neither can be added by the participant. A participant who works through the mechanics without confirming those two features first may be reading about a plan other than their own.

At Avion Wealth, this comes up most often with executives whose plans do permit both features and who have been maximizing elective deferrals for years without realizing there was substantial room left inside the same plan.

The Two Plan Features That Determine Availability

After-Tax Contributions, Which Are Not Roth Deferrals

The plan must permit voluntary after-tax employee contributions. This is a separate contribution source from pre-tax deferrals and from designated Roth deferrals, and a plan that offers a Roth 401(k) does not necessarily offer after-tax contributions. The two are frequently confused because both involve money that has already been taxed.

The contribution treatment is identical, which is why the two are frequently confused. The earnings treatment is where they diverge.

The difference is what happens to the growth. In a designated Roth 401(k), qualified withdrawals of both contributions and earnings are generally tax free. In an after-tax account, the contributions have basis but the earnings are pre-tax and taxable on withdrawal. After-tax contributions on their own are a fairly unattractive place to hold money for decades. Their value comes from the second feature.

In-Service Distributions or In-Plan Roth Conversions

The plan must also permit either an in-service distribution of the after-tax source, which allows a rollover to a Roth IRA, or an in-plan Roth conversion, which moves the after-tax money to the plan’s designated Roth account without leaving the plan.

Without one of those two mechanisms, the after-tax contributions sit where they were made and accumulate taxable earnings. The strategy that gets written about does not exist for that participant.

Confirming both features is a document question rather than a general question. The plan’s summary plan description, the recordkeeper’s contribution election screen, and the benefits or human resources contact are the three places the answer is usually found. Where a plan permits automatic or daily conversion of after-tax contributions, the answer is usually visible as an election option rather than something that has to be requested each time.

Where the Room Comes From: The Annual Additions Limit

The amount available is not a separate limit. It is what remains inside an existing one.

Internal Revenue Code Section 415(c) caps total annual additions to a participant’s defined contribution plan account. For 2026, that limit is $72,000, or 100 percent of compensation, whichever is less. (Source: IRS Notice 2025-67, as of January 1, 2026.) Annual additions include elective deferrals, employer matching and profit sharing contributions, after-tax employee contributions, and allocated forfeitures.

The elective deferral limit under Section 402(g) is a separate and lower ceiling. For 2026, it is $24,500. Catch-up contributions under Section 414(v) sit outside the annual additions limit: $8,000 for those age 50 and over, and $11,250 for those who attain age 60, 61, 62, or 63 in 2026. (Source: IRS Notice 2025-67, as of January 1, 2026.) The annual compensation that may be taken into account under Section 401(a)(17) is limited to $360,000 for 2026, which constrains the employer contribution side for the highest earners. (Source: IRS Notice 2025-67, as of January 1, 2026.)

The available after-tax room is the difference between the annual additions limit and everything else already flowing into the account. For a participant who defers the full $24,500 and receives $12,000 in employer contributions, roughly $35,500 of after-tax capacity remains.

Compensation below the annual additions limit reduces the available capacity further, since the limit is the lesser of the dollar figure and 100 percent of compensation.

The employer contribution figure is the variable that moves most between participants. A generous match compresses the room; a plan with no match expands it. Compensation below the annual additions limit compresses it further, since the limit is the lesser of the dollar figure and 100 percent of compensation. The calculation is worth running against the actual plan rather than against the headline number, and the employer contribution amount is often not final until year end, which affects how the after-tax election is sized during the year.

The Conversion Step, and the Two Routes It Can Take

In-Plan Roth Conversion

An in-plan Roth conversion moves the after-tax amount into the plan’s designated Roth account. The assets remain in the plan, subject to the plan’s investment menu and distribution rules. Some plans automate this on a payroll cycle, which limits the earnings that accumulate in the after-tax source between contribution and conversion.

In-Service Distribution and Rollover to a Roth IRA

Where the plan permits an in-service distribution of the after-tax source, the amount may be rolled to a Roth IRA. Under IRS Notice 2014-54, disbursements made at the same time to multiple destinations are treated as a single distribution for purposes of allocating pre-tax and after-tax amounts, which allows the after-tax portion to be directed to a Roth IRA while the associated earnings are directed to a traditional IRA. (Source: IRS Notice 2014-54; IRS, Rollovers of after-tax contributions in retirement plans.)

That guidance did not eliminate a related constraint. A partial distribution from the plan must still include a proportional share of the pre-tax and after-tax amounts in the account, which means a participant cannot withdraw only after-tax dollars and leave everything else behind. (Source: IRS, Rollovers of after-tax contributions in retirement plans.) How that interacts with a given plan’s accounting for separate contribution sources is a question for the plan administrator.

The choice between the two routes is not purely mechanical. A Roth IRA and a designated Roth account inside a plan differ in investment menu, creditor protection framework, distribution rules, and the treatment of required minimum distributions. Which is preferable depends on the situation and deserves review alongside existing legal and tax professionals.

Earnings Are the Taxable Part

The after-tax contributions themselves carry basis, so converting them generally produces little or no taxable income. Earnings that accrued in the after-tax source before conversion are pre-tax dollars, and converting them is a taxable event in the year of conversion.

This is why conversion frequency matters more here than it does with a backdoor Roth IRA. A participant who contributes after-tax dollars each pay period and converts once a year has allowed twelve months of growth to accumulate on the taxable side. A plan that converts automatically on each payroll cycle leaves close to nothing to be taxed. Where the plan requires a manual request, the interval between contribution and conversion is one of the few variables the participant actually controls.

Where This Runs Into Constraints

Plan Testing

After-tax employee contributions are generally included in the plan’s actual contribution percentage test, which measures the relative participation of highly compensated and non-highly compensated employees. A plan in which after-tax contributions are used heavily by a small group of high earners may fail that test, which can result in corrective distributions to the participants who contributed. This is a plan-level outcome that individual participants do not control, and it is one reason a plan may permit the feature in the document while limiting it in practice.

More Than One Employer in a Year

The annual additions limit applies per employer, subject to controlled group and affiliated service group rules, while the elective deferral limit applies per individual across all plans. A participant who changed employers mid-year, or who has self-employment income alongside W-2 employment, may face a materially different calculation than the single-plan case. This is one of the more common places the arithmetic goes wrong, and it deserves review rather than estimation.

Cash Flow

After-tax contributions are funded from income that has already been taxed, and they do not reduce current taxable income. Contributing $35,500 on an after-tax basis requires roughly that amount of available cash after tax, on top of the elective deferrals already being made. For executives whose compensation arrives in concentrated events such as bonuses or vesting, the timing of when the cash is actually available may not align with a level payroll election.

The Roth Catch-Up Change Sitting Alongside This

A separate change affects the same population. Under Section 603 of the SECURE 2.0 Act, a catch-up eligible participant whose prior-year FICA wages from the employer sponsoring the plan exceeded a specified threshold is required to make catch-up contributions as designated Roth contributions rather than pre-tax. The Roth catch-up wage threshold applied to 2025 wages, which determines status for 2026, is $150,000. (Source: IRS Notice 2025-67, as of January 1, 2026.)

Two different dates govern this, and conflating them is the most common source of confusion.

The statutory requirement took effect for taxable years beginning after December 31, 2023. IRS Notice 2023-62 then treated the first two taxable years after that date, 2024 and 2025, as an administrative transition period, during which catch-up contributions were treated as satisfying the requirement even where they were not designated Roth contributions. That transition period was not extended. For a calendar-year plan, the requirement is operative beginning January 1, 2026. (Source: IRS Notice 2023-62; preamble to Treasury Decision 10033.)

The final regulations carry a later applicability date. Issued September 16, 2025, they generally apply to contributions in taxable years beginning after December 31, 2026, which is January 1, 2027 for a calendar-year plan. For taxable years before that date, a reasonable and good faith interpretation standard applies. (Source: Treasury Decision 10033, 90 FR 44547, September 16, 2025.)

For a reader in 2026, the practical result is that the requirement applies while the detailed regulatory framework does not yet. Compliance during this period rests on good faith interpretation, which is a plan administration matter rather than a participant election.

Two further points bear on whether an individual is affected. A plan that permits catch-up contributions but does not include a Roth contribution program is not required to add one. It may instead decline to permit catch-up contributions for participants subject to the requirement, which makes what the plan currently offers the more practical question than what the statute requires. Separately, the final regulations provide a later applicability date for certain governmental plans and plans maintained under a collective bargaining agreement. (Source: IRS news release IR-2025-91, September 15, 2025.) For an airline captain participating in a collectively bargained plan, that may place the regulatory timeline on a different footing than the statutory one, and confirming the plan’s position with the administrator is the reasonable step.

How This Interacts With the Backdoor Roth IRA

The two are separate mechanisms operating under separate limits, and using both in the same year is generally permitted. A backdoor Roth IRA works within the IRA contribution limit, which for 2026 is $7,500 plus a $1,100 catch-up amount for those age 50 and over as of January 1, 2026. The mega backdoor Roth works within the plan’s annual additions limit.

There is one interaction worth noting. If after-tax plan dollars are rolled to a Roth IRA, the associated earnings may be directed to a traditional IRA under Notice 2014-54. Doing so adds to the traditional IRA balance that sits in the denominator of the pro-rata calculation governing backdoor Roth IRA conversions. A step that solves one problem may complicate the other, and the order in which both are executed across a calendar year may matter.

Where This Fits for Executives and Airline Captains

For a senior executive with equity compensation, the mega backdoor Roth is one of a small number of ways to add materially to tax-advantaged savings in a year when income is already high and most other levers are unavailable. It also sits alongside deferred compensation elections, which are made under a different set of rules and on a different timeline, and the two are worth looking at together rather than in isolation.

For an airline captain, the relevant question is often whether the plan permits the features at all, and how the after-tax source is handled at separation from service. Retirement account decisions made at a defined mandatory retirement date tend to be irreversible, and how after-tax and pre-tax sources are separated at that point interacts with the pension election, the rollover decision, and the income plan for the years before Medicare eligibility.

For a family wealth steward, the durable value is the tax character of the resulting assets rather than the amount contributed in any single year. Roth dollars accumulated over a decade of eligible years create a category of assets whose future tax treatment is already determined, which affects distribution sequencing and beneficiary planning in ways that deserve coordination with estate documents.

For executives and pilots weighing whether after-tax plan contributions fit alongside deferred compensation elections, equity compensation timing, and an existing retirement income plan, Avion Wealth offers a complimentary Discovery Meeting to review how the pieces may fit together, coordinated alongside existing legal and tax professionals.

To your success,

The Avion Wealth Team

Frequently Asked Questions

What is the mega backdoor Roth limit for 2026?

There is no separate limit. The available amount is the Section 415(c) annual additions limit, $72,000 for 2026 as of January 1, 2026, less elective deferrals and employer contributions already made to the account. Catch-up contributions under Section 414(v) sit outside that limit. A participant deferring the full $24,500 with $12,000 in employer contributions would have $35,500 of remaining capacity on those assumptions.

How can a participant tell whether a 401(k) allows the mega backdoor Roth?

Two features have to be present: voluntary after-tax employee contributions, and either an in-service distribution of the after-tax source or an in-plan Roth conversion. The summary plan description, the recordkeeper’s contribution election screen, and the plan administrator are where that is confirmed. A plan offering a Roth 401(k) does not necessarily offer after-tax contributions, since they are separate contribution sources.

Are after-tax 401(k) contributions the same as Roth 401(k) contributions?

No. Both are made with money that has already been taxed, but the earnings are treated differently. Qualified withdrawals from a designated Roth account are generally tax free including earnings, while earnings in an after-tax source are pre-tax dollars and taxable on withdrawal. That difference is why the conversion step is what makes the strategy function.

Is tax owed on the conversion?

The after-tax contributions themselves generally convert without producing taxable income, since they carry basis. Earnings that accumulated in the after-tax source before conversion are taxable as ordinary income in the year of conversion. Converting more frequently generally reduces the amount of earnings exposed, which is why plans offering automatic conversion produce a cleaner result.

Can both a backdoor Roth IRA and a mega backdoor Roth be done in the same year?

Generally yes, since they operate under separate limits: the IRA contribution limit and the plan’s annual additions limit. One interaction deserves attention. Where earnings from the after-tax plan source are rolled to a traditional IRA, that balance enters the pro-rata calculation that governs the taxable portion of a backdoor Roth IRA conversion.

What happens if the plan fails testing?

After-tax employee contributions are generally included in the plan’s actual contribution percentage test. Where a plan fails, the correction may include distributing a portion of the contributions back to the highly compensated participants who made them. This is determined at the plan level and is one reason some plans permit the feature in the document while limiting its use in practice.