Few people will dispute the fact that Roth IRAs are an incredibly powerful way to grow wealth. Unfortunately, getting a significant amount of money into a Roth account is tricky. In 2025, annual contributions are limited to only $7,000 — $8,000 if you’re over the age of 50. Even worse, income limits prevent you from contributing anything to a Roth IRA if your modified adjusted gross income (MAGI) exceeds $165,000 for single taxpayers or $246,000 for taxpayers who are married and file jointly.

The difficulty of getting money into a Roth account frustrated me for several years until I heard about something called the “mega backdoor Roth conversion.” At first, I was skeptical about any strategy with “mega” in its name. It sounded like a Wall Street sales pitch to me. But as I looked at it more closely, I realized this was an answer to my Roth frustrations. I finally saw a way for investors to contribute a meaningful amount of money to a Roth IRA. Here’s how the conversion works.

The mega backdoor Roth conversion requires that you participate in a defined contribution plan, such as a 401(k) plan, that either has a Roth option or allows you to make in-service rollovers. An in-service rollover means your plan allows you to roll your money into an IRA while you’re still working. You do the conversion by contributing after-tax money to the 401(k) and then directing the contribution into the plan’s Roth option, or rolling it out of the plan and into a Roth IRA.

IRS regulations place a limit on the total amount employees and employers can contribute to 401(k) plans each year. The overall limits are higher than the limits on pre-tax contributions to a 401(k) plan. The difference between these limits provides the opportunity for conversion.

In 2025, the overall contribution limits for employees and employers to 401(k) plans are:

*$70,000 for those younger than 50.*$77,500 for those age 50 to 59 or older than 64.*$81,250 for those age 60 to 63.

The 2025 pre-tax contribution limits for employees are:

*$23,500 for those younger than 50.*$31,000 for those age 50 to 59 or older than 64.*$34,750 for those age 60 to 63.

To get the most out of a mega backdoor Roth conversion, a high-income earner would first maximize their pre-tax contribution to their 401(k). They would then contribute enough after-tax dollars to round out their contribution to the overall limit.

To better understand how this works, let’s look at a simple example with Sally, a hypothetical 47-year-old making $250,000 per year. Sally’s employer offers a 401(k) plan with a 4% salary match and no Roth option. Fortunately, Sally’s 401(k) plan allows in-service distributions, meaning Sally can roll her 401(k) balance into an IRA if she desires.

Because Sally is younger than 50, she contributes $23,500 in pre-tax dollars to her 401(k). Her company matches 4% of her salary, or $10,000. That means she has another $36,500 available to contribute before she hits the $70,000 overall contribution limit. She makes a contribution of $36,500 using after-tax dollars and immediately rolls the after-tax contribution out of the 401k plan and into a Roth IRA. There isn’t any tax consequence because the 401(k) contribution was made with after-tax dollars. If Sally’s 401(k) plan had a Roth option, she could have made her after-tax contributions directly to the 401(k) plan’s Roth account.

Though this strategy may appear simple, there are many factors to consider. First, make sure your 401(k) plan has a Roth option or allows in-service withdrawals. Not every plan does. You can find out by looking at your plan’s Summary Plan Description, available from your plan administrator. Second, make sure your personal situation warrants the complexity of this strategy. If you think it might make sense for you, consult with your tax professional or wealth manager.

Steven C. Merrell, MBA, CFP®, AIF®, is a Managing Director at Creative Planning (formerly known as Monterey Private Wealth). He welcomes questions you may have concerning investments, taxes, retirement or estate planning. Send your questions to: Steve Merrell, 2340 Garden Road, Suite 202, Monterey, CA, 93940. Or you can email steve.merrell@creativeplanning.com. This commentary is provided for general information purposes only, should not be construed as investment, tax or legal advice, and does not constitute an attorney/client relationship. Past performance of any market results is no assurance of future performance. The information contained herein has been obtained from sources deemed reliable but is not guaranteed.