After-Tax 401(k) Contributions: The Key to Mega Backdoor Roth

Most people know about pre-tax and Roth 401(k) contributions. But there’s a third type that can add $20,000 to $47,500+ to your Roth savings each year. After-tax 401(k) contributions are the “secret” layer that powers the Mega Backdoor Roth strategy.

After-tax contributions are NOT the same as Roth contributions. They’re a separate category with their own rules. The real value comes from converting them to Roth immediately, which is where the term “Mega Backdoor Roth” comes from.

If you’re a business owner who controls your own 401(k) plan or an employee at a company that allows after-tax contributions, this guide covers how to use them for massive Roth accumulation.

What are after-tax 401(k) contributions and how do they work?

After-tax 401(k) contributions are a third category of 401(k) savings distinct from both pre-tax (traditional) and Roth deferrals. You contribute with dollars that have already been taxed, but unlike Roth, the earnings on those contributions remain taxable. The real power comes from immediately converting these after-tax contributions to Roth (inside the plan or via rollover), making future growth tax-free. For 2026, after you’ve made your $24,500 employee deferral and received employer contributions, you can contribute additional after-tax dollars up to the overall $72,000 limit. This enables the Mega Backdoor Roth, potentially adding $20,000-$47,500+ to your Roth savings annually.

Key Takeaways

• After-tax is NOT Roth – After-tax contributions have taxable earnings on withdrawal; Roth growth is tax-free (convert immediately to get the benefit)
• Fills the gap to 415(c) – Employee deferral ($24,500) + employer contributions + after-tax = up to $72,000 total for 2026
• Enables Mega Backdoor Roth – Convert after-tax contributions to Roth for massive tax-free accumulation beyond normal limits
• Plan must allow it – Most standard 401(k)s don’t permit after-tax contributions; check your plan document
• Business owners have control – Solo 401(k) or small business plans can be designed to include this feature
• Convert quickly – Earnings on after-tax contributions before conversion are taxable income

Understanding the Three Types of 401(k) Contributions

Your 401(k) can hold three distinct types of money, each with different tax treatment. Understanding these differences is critical before using after-tax contributions.

Pre-Tax (Traditional) Contributions

Pre-tax contributions reduce your taxable income in the year you contribute. If you earn $200,000 and contribute $24,500 pre-tax, your taxable income drops to $175,500. The money grows tax-deferred, and you pay ordinary income tax when you withdraw in retirement.

This is the most common type of 401(k) contribution. It’s what most people have been doing for decades.

Roth Contributions

Roth contributions are made with after-tax dollars (no current deduction), but they grow tax-free. Qualified withdrawals in retirement are completely tax-free, including all the earnings.

The contribution limit for Roth is the same as pre-tax: $24,500 in 2026 (plus catch-up if eligible). You can split between pre-tax and Roth however you want, but the combined limit is $24,500.

For a detailed comparison, see our Roth 401(k) vs Traditional 401(k) guide.

After-Tax Contributions (The Third Type)

After-tax contributions are made with after-tax dollars (like Roth). But here’s the critical difference: the earnings on after-tax contributions are taxable when withdrawn.

Think of it this way:

• Roth: After-tax in, tax-free out (contributions AND earnings)
• After-tax: After-tax in, partially taxable out (contributions tax-free, earnings taxable)

Why would anyone choose after-tax if Roth is better? Because after-tax contributions have a much higher limit. They can fill the gap between your regular contributions and the overall 415(c) limit of $72,000.

After-tax contributions only make sense if you convert them to Roth. Without conversion, you get the worst tax treatment (no deduction, taxable growth). The conversion is what transforms them into a powerful Roth-building tool.

Contribution Type Comparison

The bottom row is the key. After-tax converted to Roth gets the same treatment as regular Roth contributions, but without the $24,500 limit.

2026 Contribution Limits and How After-Tax Fits In

The overall 401(k) limit is set by IRC Section 415(c). For 2026, here’s how everything stacks up.

The 415(c) Limit Breakdown

Catch-Up Contributions by Age

Note: The enhanced catch-up for ages 60-63 is a SECURE 2.0 provision that took effect in 2026.

Calculating Your After-Tax Room

Formula:

After-tax room = 415(c) limit – Employee deferrals – Employer contributions

Example 1: S-Corp owner, age 45, $200,000 W-2 salary

• Employee deferral: $24,500
• Employer profit sharing (25%): $50,000
• Total so far: $74,500… but capped at $72,000
• After-tax room: $0 (already at limit from employer contributions)

In this case, the owner has no after-tax room because employer contributions already push them to the 415(c) limit.

Example 2: W-2 employee, age 40, $150,000 salary, 3% employer match

• Employee deferral: $24,500
• Employer match (3%): $4,500
• Total so far: $29,000
• After-tax room: $72,000 – $29,000 = $43,000 (if plan allows)

This employee could contribute $43,000 in after-tax contributions and convert to Roth. That’s nearly $50,000 in total Roth contributions for the year ($24,500 Roth deferral + $43,000 after-tax converted).

The Mega Backdoor Roth Strategy Step by Step

The Mega Backdoor Roth combines after-tax contributions with immediate Roth conversion to supercharge your tax-free savings. Here’s exactly how to execute it.

What Is Mega Backdoor Roth?

The Mega Backdoor Roth allows you to contribute $20,000 to $47,500+ beyond your regular Roth 401(k) deferrals and convert it all to Roth. While the standard Roth 401(k) deferral limit is $24,500, the Mega Backdoor Roth can potentially double or triple your annual Roth accumulation.

Step 1: Confirm Plan Eligibility

Before anything else, verify that your 401(k) plan allows:

1. After-tax contributions – Not all plans permit this
2. In-plan Roth conversions OR in-service rollovers – You need one of these to convert

Check your Summary Plan Description (SPD) or ask your HR department/plan administrator. For solo 401(k) owners, review your plan document carefully.

Step 2: Calculate Available Room

Determine your after-tax capacity using the formula above. Subtract your planned deferrals and expected employer contributions from the 415(c) limit.

If you have catch-up eligibility (age 50+), remember the 415(c) limit increases to $80,000 or $83,250 depending on your age.

Step 3: Make After-Tax Contributions

Designate contributions as “after-tax” through your payroll or plan administrator. This is NOT the same as Roth. After-tax contributions go into a separate sub-account within your 401(k).

Some plans allow a fixed dollar amount per paycheck. Others require a percentage. Calculate what you need to contribute each pay period to reach your annual target.

Step 4: Convert to Roth Immediately

You have two options:

Option A: In-plan Roth conversion

Your after-tax money stays in the 401(k) but moves to the Roth 401(k) sub-account. This is often the simplest option if your plan supports it.

Option B: Roll to Roth IRA

Your after-tax contributions roll out of the 401(k) and into your Roth IRA. The earnings (if any) can roll to a Traditional IRA or you can pay tax and roll to Roth.

The key is to convert quickly to minimize taxable earnings accumulation.

Step 5: Repeat Each Pay Period

Many plans allow automatic conversion after each contribution. If your plan offers “auto-conversion,” enable it. If not, set a reminder to initiate manual conversions promptly after each after-tax contribution hits your account.

Why Timing Matters

After-tax contributions earn investment returns while sitting in the after-tax sub-account. Those earnings are taxable when converted.

Example:

• You contribute $10,000 after-tax in January
• Wait until December to convert
• Investment gains of $500 accumulate
• Result: $10,000 converts tax-free, but $500 is taxable income

Had you converted the same day, the full $10,000 would convert tax-free with $0 taxable.

Same-day or same-week conversion is ideal. Some plans even process this automatically overnight.

Which 401(k) Plans Allow After-Tax Contributions?

Not all plans offer this feature. Here’s what to expect based on plan type.

Large Employer Plans

Some major employers (Google, Microsoft, Amazon, and others) allow after-tax contributions with in-plan Roth conversion. But many large employers don’t.

What to check:

• Summary Plan Description (SPD)
• Look for “after-tax contributions” and “in-plan Roth conversion” or “in-service distribution”
• Contact HR or your benefits administrator

If your employer doesn’t offer it, you can request they add it. For large companies, this may require waiting for the next plan amendment cycle.

Solo 401(k) Plans

Here’s where it gets interesting for business owners.

Standard brokerage solo 401(k)s (typically NO):

Most free solo 401(k)s from major brokerages don’t support after-tax contributions:

• Fidelity (standard): No after-tax
• Schwab (standard): No after-tax
• Vanguard (standard): No after-tax
• E*Trade (standard): No after-tax

These plans are designed for simplicity, not maximum Roth accumulation.

Custom solo 401(k) providers (YES):

• MySolo401k.net: Specifically supports after-tax + in-plan conversion
• OEBI, Accuplan: Also support Mega Backdoor Roth features
• Cost: $99-$400/year (vs. $0 at standard brokerages)

The annual fee is worth it if you’ll contribute $10,000+ in after-tax annually. See our Solo 401(k) Roth Contributions guide for provider details.

Small Business 401(k) Plans

If you run a small business with employees, you can add after-tax contribution features to your plan:

• Requires plan document amendment
• Work with your TPA (Third Party Administrator)
• May add administrative costs
• Valuable for owners who want maximum Roth accumulation

Provider Comparison Table

After-Tax 401(k) vs. Backdoor Roth IRA

These are two different strategies with different limits and rules. You can use both.

Side-by-Side Comparison

When to Use Backdoor Roth IRA

• Anyone can do it (doesn’t require employer plan features)
• Lower limit ($7,500 in 2026, $8,600 if 50+)
• Subject to pro-rata rule if you have pre-tax IRAs
• Good starting point before tackling Mega Backdoor Roth

When to Use After-Tax 401(k)

• Only if your plan allows after-tax contributions + conversion
• Much higher limit (fills gap to $72,000 overall)
• No pro-rata concerns (401(k) rules are different from IRA rules)
• More administrative complexity, but bigger payoff

The Optimal Strategy: Do Both

For maximum Roth accumulation, layer these strategies:

1. Max Roth 401(k) employee deferrals: $24,500
2. Make employer contributions (pre-tax): Up to 25% of comp
3. Fill remaining 415(c) room with after-tax: Varies by situation
4. Convert after-tax to Roth: Immediately
5. Do backdoor Roth IRA: $7,500-$8,600

Total potential Roth accumulation: $32,000-$56,000+ annually, depending on employer contributions and catch-up eligibility.

Tax Reporting for After-Tax Contributions

After-tax contributions create specific tax reporting requirements. Here’s what to track.

Tracking Your Basis

After-tax contributions create “basis” (already-taxed money) in your 401(k). Your plan administrator tracks this automatically.

When you convert or withdraw:

• Your basis (after-tax contributions) comes out tax-free
• Only the earnings are taxable
• If you convert immediately, earnings are minimal or zero

Forms You’ll Receive

Form 1099-R (issued when you convert or roll over):

• Box 1: Gross distribution (total amount converted)
• Box 2a: Taxable amount (just the earnings, if any)
• Box 5: Employee contributions (your after-tax basis)
• Box 7 codes: G (direct rollover) or 2 (early distribution, exception applies)

Keep copies of all 1099-R forms. You’ll need them to document your Roth basis.

Reporting Conversions on Your Tax Return

• In-plan Roth conversion: Taxable earnings (if any) reported on Form 1040
• Rollover to Roth IRA: Similar reporting via 1099-R
• Form 8606: Not required for 401(k) conversions (that’s for IRA)

Maintain records of all after-tax contributions and conversions. If audited, you’ll need documentation showing the after-tax nature of your contributions.

Common Mistakes to Avoid

Mistake 1: Confusing After-Tax with Roth

After-tax contributions are NOT Roth until you convert them. Leaving after-tax contributions unconverted gives you the worst of both worlds: no deduction AND taxable earnings.

Always convert. That’s the entire point of making after-tax contributions.

Mistake 2: Waiting Too Long to Convert

Every day your after-tax contributions sit unconverted, investment earnings accumulate. Those earnings become taxable income when you convert.

Convert immediately. Same-day is ideal. Same-week is acceptable. Waiting months defeats the purpose.

Mistake 3: Not Checking Plan Eligibility First

Most 401(k) plans don’t allow after-tax contributions. Don’t assume yours does.

Before contributing, confirm your plan allows after-tax contributions AND has a conversion mechanism (in-plan Roth conversion or in-service rollover to Roth IRA).

Mistake 4: Exceeding the 415(c) Limit

After-tax contributions + employee deferrals + employer contributions cannot exceed $72,000 (2026, under age 50).

Excess contributions trigger IRS penalties and corrective distributions. Calculate carefully before committing to a contribution schedule.

Mistake 5: Ignoring State Tax Implications

Most states follow federal Roth treatment, but some don’t. A handful of states may tax Roth conversions or don’t recognize Roth’s tax-free status.

Know your state’s rules before executing this strategy. This is especially relevant if you live in a state with no income tax now but plan to retire somewhere with state income tax.

Frequently Asked Questions

Are after-tax 401(k) contributions the same as Roth 401(k) contributions?

No. Roth contributions are made with after-tax dollars AND grow tax-free. After-tax contributions are made with after-tax dollars BUT earnings remain taxable until you convert to Roth. After-tax is a stepping stone to Mega Backdoor Roth, not a final destination.

What is the limit for after-tax 401(k) contributions in 2026?

There’s no separate after-tax limit. After-tax contributions fill the gap between your employee deferrals ($24,500) plus employer contributions and the overall 415(c) limit ($72,000 for under 50). If you contribute $24,500 and your employer contributes $30,000, you have $17,500 of after-tax room.

Does my 401(k) plan allow after-tax contributions?

Most don’t. Check your Summary Plan Description (SPD) or ask your HR department/plan administrator. Standard brokerage solo 401(k)s from Fidelity, Schwab, and Vanguard don’t allow it. Custom plans from providers like MySolo401k.net do.

How quickly should I convert after-tax contributions to Roth?

As quickly as possible. Ideally the same day. Any investment gains on after-tax contributions before conversion are taxable income. Many plans offer automatic in-plan Roth conversions. If yours doesn’t, initiate manual conversions promptly after each contribution.

Can I do Mega Backdoor Roth if I also do backdoor Roth IRA?

Yes. These are separate strategies using different accounts. Backdoor Roth IRA uses your IRA ($7,500-$8,600 limit in 2026). Mega Backdoor Roth uses your 401(k) after-tax room (potentially $20,000-$47,500+). Doing both maximizes your annual Roth accumulation.

What happens if I leave my job with after-tax contributions?

You can roll them out. Roll the after-tax contributions (your basis) to a Roth IRA tax-free. Roll any earnings to a Traditional IRA (or pay tax and roll to Roth). Request a “split rollover” from your plan administrator to separate the after-tax basis from earnings.

Is Mega Backdoor Roth going away?

As of 2026, it remains legal. There have been legislative proposals to eliminate it (including provisions in the Build Back Better bill), but none have passed. The One Big Beautiful Bill Act did not eliminate backdoor Roth strategies. However, tax law can change, so consult current guidance before executing this strategy.

Can I make after-tax contributions to a SEP IRA?

No. SEP IRAs don’t have an after-tax contribution option. Only 401(k) plans (including solo 401(k)s with the right plan document) can offer after-tax contributions. This is one reason business owners often prefer solo 401(k) over SEP IRA for maximum Roth accumulation.

Next Steps

If your plan allows after-tax contributions:

1. Calculate your available room (415(c) limit minus other contributions)
2. Set up automatic after-tax contributions each pay period
3. Enable automatic Roth conversion if your plan offers it
4. Track your basis for future tax reporting

If your plan doesn’t allow after-tax contributions:

• Request the feature from your employer (for W-2 employees)
• If self-employed, consider switching to a custom solo 401(k) from a provider like MySolo401k.net
• Use backdoor Roth IRA in the meantime ($7,500-$8,600/year)

Want to add Mega Backdoor Roth to your retirement strategy? Schedule a tax planning consultation and we’ll analyze your plan options, calculate your contribution limits, and help you set up the optimal structure for maximum Roth accumulation.

Related Guides:

• Retirement Tax Planning Hub
• Backdoor Roth vs Mega Backdoor Roth
• Solo 401(k) Roth Contributions
• Roth 401(k) vs Traditional 401(k)
• The Pro-Rata Rule Explained