After tax contributions and the mega backdoor Roth

How it works

The regular deferral cap of this year's official 401k elective deferral limit (not yet verified here; see the official source below) covers traditional and Roth deferrals, but the plan's total cap of $72,000 (2026, verified on the official page) is higher and counts deferrals, employer money, and after tax contributions together. Where the plan allows after tax contributions, a worker can fill the space between the two caps with after tax money. Where the plan also allows an in plan Roth conversion or an in service rollover to a Roth IRA, that after tax money can be moved into Roth status, and only the earnings it has made since going in are taxed at the time of the move. This two step path is commonly called the mega backdoor Roth, and it is simply what the rules permit when a plan document includes both features. Many plans include neither, and the plan administrator can say which features exist.

What it gives

Far more money can reach Roth status each year than through a Roth IRA alone.

There is no income limit on the after tax contribution or the in plan conversion.

When the conversion happens soon after the contribution, the earnings taxed at that point are small.

What it costs, or where the catch is

Most plans do not offer after tax contributions, and some that do offer no conversion path.

Employer contributions use up part of the total cap, which shrinks the after tax room.

After tax money left unconverted for years builds taxable earnings that are taxed at conversion.

A worked example

Celeste earns $190,000 and her plan allows after tax contributions and in plan conversions. She defers $20,000 to the traditional side and her employer adds $9,500. If her plan's total room this year were $60,000, the space left is $60,000 minus $20,000 minus $9,500, which is $30,500, and she puts that in after tax. She converts it the same month, with $40 of earnings, so $40 is taxed and $30,500 becomes Roth money.

Where it goes wrong

The common miss is assuming every 401(k) has this feature, or making after tax contributions and then leaving them unconverted for years while the earnings pile up as future taxable income.

Who confirms it for you

For your own numbers, the plan administrator or HR. This page explains how the rule works for people in general; it does not know your situation and does not tell you what to do.

The official source

IRS: FAQs on designated Roth accounts. Every figure that changes by year comes from the site's rules table, which the watcher checks against the official page on a schedule; where a figure is not yet verified, this page says so instead of printing a number.