Looking for ways to get more tax-free income in retirement? You should check out the mega backdoor Roth tax-planning strategy. That is assuming you have already maxed out your Roth IRA and 401(k). Making the maximum mega backdoor Roth contribution in 2025 could help triple your contributions in 2025 versus just contributing to a regular Roth 401(k). The mega backdoor Roth allows for nearly 10 times the contribution limits of a regular Roth, depending on your age.
Maximizing your tax-free income in retirement is a great way to avoid running out of money your turn you life savings into a paycheck.
After-Tax Contributions To Your 401(k)
Making after-tax contributions to your 401(k) is different from just making Roth IRA or Roth 401(k) contributions, but the end result can be similar if you use the mega backdoor Roth strategy.
For tax year 2025, workers younger than age 50 can contribute $23,500 from their salaries to their 401(k) or Roth 401(k) retirement accounts. Your employer must offer a Roth 401(k) option; luckily, most larger employers do.
Some 401(k) plans offer the option to make additional after-tax contributions to your traditional 401(k), which allows you to save well beyond the $23,500 cap. For 2025, you could potentially have $70,000 go into your 401(k)s between your contributions and any employer matching or profit sharing. That number jumps to $77,500 if you are 50 or older. If you are ages 60 to 63, an additional catch-up contribution is available.
Unfortunately, not all workplace retirement plans will allow for after-tax contributions. You could be asking why someone would want to contribute after-tax dollars to their 401(k). Keep reading as we go over some of the benefits of a mega backdoor Roth strategy.
Optimizing The Mega Backdoor Roth Tax-Planning Strategy
If you are able to make after-tax contributions to your 401(k), you can then leverage the benefits of the mega backdoor tax-planning strategy to get even more money into your Roth IRA. Remember, you won’t get a tax deduction for these contributions.
Depending on your 401(k) plan’s rules, you can either send your after-tax funds to a Roth 401(k) within the plan or to a separate Roth IRA outside of the 401(k). From there, your assets can grow tax-free and be withdrawn tax-free in retirement.
Mega Backdoor Roth Versus Regular Roth IRA?
If the mega backdoor Roth tax-planning strategy is new to you, I assume you are pondering why go through these extra steps with after-tax contributions. If you are doing a mega backdoor Roth, we assume you have already maxed out your Roth IRA or are over the income limits to contribute. Similarly, you are also already making your full pre-tax or Roth contributions. Again, the mega backdoor Roth allows you to contribute $70,000 into tax-advantaged retirement accounts well beyond the $23,500 cap in 2025 without this strategy.
Once you retire, you can consolidate your Roth 401(k) and Roth IRA into one account and begin enjoying tax-free retirement income.
How Much Money Could You End Up With In A Roth IRA?
Making extra after-tax contributions to your 401(k) can really add up. If you have 25 years to retirement, just $10,000 a year of extra savings can add up to $1 million in Roth 401(k) assets, assuming a 10% return each year. This money can be withdrawn tax-free in retirement.
If you were able to make the full mega backdoor contribution ($54,000) for just 10 years before retirement, you could have an additional $860,000 in retirement. If you contributed this amount for 25 years, you could have over $5.3 million in extra retirement savings that could be withdrawn tax-free.
Keep in mind that these numbers are in addition to your own Roth 401(k) or traditional 401(k) contributions.
The finer details of implementing the mega backdoor Roth IRA strategy can trip up some people. Talk with your fiduciary financial planner to avoid the headaches mistakes can cause and ensure you have a plan to build a retirement income plan you won’t outlive while minimizing your lifetime tax bills.
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