Big Tech Perk: Mega Back Door Roth

A lot individuals are familiar with the Backdoor Roth strategy; basically a tax law loophole approved by the IRS to fully contribute to a Roth IRA each year regardless of your income ($7,000 max in 2025).

BUT....many individuals are less familiar with its bigger cousin, the Mega Back Door Roth, which can allow individuals to contribute up to $70,000 to a Roth 401k in 2025!

Your company needs to offer a 401k plan with this feature to participate (only a few companies do), but it can be a very advantageous perk for high-income earners working at publicly traded tech companies to maximize their tax-free retirement savings.

Here's what you need to know

1. What Is a Mega Backdoor Roth Conversion?

A Mega Backdoor Roth conversion works similar to a normal backdoor Roth -- wherein you make after-tax contributions to your employer-sponsored 401(k) plan and subsequently convert those contributions into Roth.

2. What Is Required For Me To Participate?

By and large, two things:

• Your company's 401k plan allows for after-tax contributions. Mostly don't, so this is your first step to investigate. To find out, (1) consult your plan docs, (2) ask your HR team, and/or (3) This Levels.FYI link is a great resource

• If your company 401k plan allows for after-tax contributions, it also needs to allow for in-service conversions. If your plan offers after-tax contributions, it most likely offers this as well, as these tend to go hand-in-hand, but good to confirm.

3. How Does It Work/What Are The Steps To Participate?

The process typically involves the following steps:

1. Max Your Normal 401k Contribution: Contribute the maximum allowable amount to your 401(k) (traditional or Roth style). For 2025, this limit is $23,500.

2. Thereafter, Make After-Tax Contributions: Presuming your 401(k) plan permits, contribute additional funds on an after-tax basis up to the total annual limit of $70,000.

3. Convert to Roth: Presuming again that your 401k plan allows it, you would conduct an in-service conversion of your after-tax contribution(s) to Roth. This conversion allows the funds to grow tax-free, and qualified withdrawals in retirement are also tax-free.

4. What is the Max Amount I Can Contribute?

Assume $70,000 in total. Here's the gist of what the IRS rules are in 2025:

• First, each employee is allows to contribute a maximum of $23,500 to their 401k plan (or a bit higher if you're allowed to make catch-up contributions)

• Second, your employer is allowed to contribute additional funds (e.g. a match or profit share)

• Last, if allowed by the plan, the employee can contribute more after-tax

Collectively, the total contribution made into an employee 401k plan can't exceed the IRS maximum, which for 2025 is $70,000 (or a bit higher if you're above the age of 50 and allowed to make catch-up contributions)

5. Pros and Cons of Pursuing This Strategy

Pros:

• Increased Tax-Free Savings: Allows for substantial contributions to Roth accounts, leading to significant tax-free growth potential.

• No Income Limits: Similar to the backdoor Roth IRA strategy, there are no income restrictions for Mega Backdoor Roth conversions.

Cons:

• Plan Availability: Only a small portion of employers offer the necessary 401(k) features to facilitate this strategy.

• Complexity: The process involves multiple steps and requires careful planning to avoid tax complications.

• Liquidity Considerations: Funds contributed are earmarked for retirement and may not be easily accessible without penalties.