Have you received a windfall from vested Restricted Stock Units (RSUs) or Nonqualified Stock Options (NQSOs) this year? You might consider turbo charging your retirement savings this year from a Mega Backdoor Roth IRA.

So how does this strategy work, and is it potentially an option in your situation? Read on for more.

What is a Mega Backdoor Roth?

A Mega Backdoor Roth refers to a strategy that can potentially allow you to contribute after-tax funds to your workplace 401(k) over and above the 2023 401(k) contribution limit of $22,500.

If available, the strategy can be particularly useful for those who earn too much to contribute to a Roth IRA directly. If you earn $153,000 or more as a single taxpayer, or $228,000 or more as a married filing jointly taxpayer, then you can’t contribute anything directly to a Roth IRA in the 2023 tax year.

This strategy is also helpful for clients that have more funds to contribute to retirement since a direct IRA contribution is maxed out at $6,500 per year. If a Mega Backdoor Roth is available, you can divert up to $43,500 more to your 401(k) in 2023 ($66,000 total plan limit less $22,500 employee contribution limit).

While this contribution is after-tax dollars (and there is no tax deduction for your contributions), most plans allow a quick conversion to a Roth subaccount which will allow the money to grow tax free and be rolled into a Roth IRA at some point in the future. Distributions from the Roth IRA are also tax free and allow some flexibility in withdrawing contributions before normal retirement age. This can be especially helpful if you are considering an early retirement.

How Does a Mega Backdoor Roth Work?

The Mega Backdoor Roth strategy is a two step process: 

(1) Making after-tax contributions to your 401(k) plan, and 

(2) Then doing a conversion to a Roth account within your 401(k)

It’s important to know how these contributions break down and work within your 401(k):

Types of 401k contributions

(Note: For the 2023 tax year, anyone age 50 and older is eligible for an additional $7,500 in catch-up contributions, for a total of $30,000 in pre-tax and/or Roth contributions and a total of $73,500 in all types of contributions combined.)

I’m Convinced, Where Do I Sign Up?

First off, check with your 401(k) plan document (yeah, that PDF you get each year that is 30 pages long…) and see if after-tax contributions are allowed. If so, you should see another provision nearby that describes the potential for in-plan Roth conversions or in-service withdrawals that would allow you to roll this money out into a Roth IRA.

Many smaller businesses may not have the option. This is often because they wouldn’t meet IRA discrimination testing if there are few employees that are interested in saving more.

Many of the larger technology companies DO allow for this option. Some common ones that we come across are:

Legislative Uncertainty

So far, this strategy is still available but recent draft legislation attempted to put it on the chopping block. The Build Back Better Act in 2021 would have ended the benefit, but stalled in the Senate. As is often the case, we may see this pop back up if legislators are looking for a way to fill a budget gap. Legislative changes of this type are rarely retroactive given the complexity involved in unwinding transactions that have already occurred. So for now, enjoy the benefits!


Mega Backdoor Roth IRAs can be a great retirement savings tool, especially in years where you’ve received an equity compensation windfall. Check your plan documents to see if you’re eligible. If you need help determining if this should be a part of your long range tax planning, please reach out!

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