What On Earth Is The Mega Back Door Roth 401k? (2025 Edition)
Not a character from Transformers, but a really great way to save a lot more for retirement than the rest of us. But it's only available if your employer chooses to set it up in your workplace plan.
For most employees, the maximum that can be contributed to their workplace 401k plan in 2025 is their own annual contribution of $23,500 ($31k if aged 50 or older) plus any match that the employer may add.
However, if you are lucky enough to work for a cooperative employer and have the extra funds available, there can be a way to get a tax-advantaged total of up to $70k contributed (2025) to your retirement plan, using what’s called the Mega Back Door Roth (MBDR) 401k contribution. This can also be used in a Solo 401k (more detail later) or a 403b plan - although for simplicity, I will simply refer to 401k plans in this piece. The MBDR feature is not available with any SEP or SIMPLE IRAs.
Who can make use of the MBDR feature?
Before I explain how it works, it’s important to understand that the MBDR contribution is only possible in a very limited number of situations. The feature is fully available or of use to you only if all three of the following conditions apply:
your employer plan needs to offer an “after-tax contribution” option (this is not the same as offering a Roth contribution option). This is a third bucket of money in the plan, separate from any Traditional 401k and Roth 401k buckets. As the name implies, you've already paid income taxes on the dollars you put into this after-tax account, so there is no current tax deduction associated with the contribution.
your employer also needs to offer an “in-service withdrawal” option in its workplace retirement plan. This grants you the ability to move money around while you are still working at the company from the after-tax bucket described above either into an external Roth IRA or into a Roth 401k part of the plan as described below.
you also have to be willing and able to contribute more than the regular 401k maximum (2025) of $23,500 per year ($31k if over 50 years old) to your workplace retirement plan.
How much additional $$ can I contribute?
In 2025, you can additionally contribute according to the formula; ($70k minus your regular pre-tax maximum annual contribution of $23,500 or $31k for the over 50’s, minus whatever the dollar amount of any company match is).
Let’s say that you are younger than 50 years old, contribute the full $23,500 maximum and your employer puts in a match of, say, $6,500. That’s $30k total going in. If the MBDR feature is available to you then you could use it to add up to another $40k ($70k max - $30k total being contributed) in after-tax dollars to your plan for a total of $70k per year.
There are no income limits associated with MBDR contributions. It doesn’t matter what your income is, although of course your salary level could impact the dollar amount of your employer match which, as you can see from the formula above, could impact how much additional you can contribute.
I want to do this. How does it work?
If a company offers MBDR features to its employees, then its Human Resources department is likely to be well-trained in setting everything up in the plan to facilitate both the after-tax contributions through payroll and the rollovers for the appropriate amounts.
Once you have established that your employer does, in fact, offer MBDR contribution capability, the idea is to get the additional $$ into the after-tax bucket. Then, as soon as possible, those funds should be moved into a Roth bucket (see below for bucket options), something that is only permitted if the company plan also allows for “in-service withdrawals” to those still working for that employer.
The reason it should be done as soon as possible is that, for as long as the $$ sits in the after-tax bucket, it could theoretically generate taxable earnings and you would eventually need to pay tax on those earnings, but once it is in the Roth bucket, it grows tax-free.
The Roth destination of the $$ that you put into the after-tax bucket can be either i) your Roth IRA, or ii) a Roth 401k account set up by the employer and held within the workplace retirement plan (which can later be rolled into a Roth IRA, if desired, once you leave that employer).
Many MBDR-friendly employers provide a Roth 401k account within the plan precisely in order to make the rollover process as seamless and convenient as possible through payroll deductions and automated transfers, but even if yours doesn’t (or you simply prefer the wider investment options available within a Roth IRA over your 401k investment choices), you can arrange to rollover the $$ from the after-tax bucket to your outside-held Roth IRA.
What if my employer does offer after-tax contributions, but not an in-service withdrawal option?
If your plan doesn’t allow in-service withdrawals to a Roth IRA or in-plan rollovers to a Roth 401k account, then your ability to complete the MBDR process by moving the contents of the after-tax account to a Roth account is going to have to be delayed until after you leave that employer and are no longer eligible to be part of the workplace retirement plan, at which time you could roll over the balance of the after-tax bucket to your external Roth IRA. You would, however, be liable at that time for tax on any earnings accrued while the $$ sat in the after-tax account and this could make the strategy a lot less attractive.
Why does my employer not offer MBDR features?
Internal Revenue Service (IRS) non-discrimination tests require that retirement plans don't offer a substantially bigger benefit to high-income employees than to rank-and-file workers. These rules limit the amount of after-tax contributions that highly-paid employees can make based on the amount made by lower-paid employees.
Since high-paid employees are often the only participants able to afford these after-tax contributions, it is often difficult for plans offering such a feature to pass the non-discrimination test. If the highest-paid workers are saving at a much higher rate than other workers, the plan may even be forced to return some of that money, if the plan starts to fail the test.
That’s why many plans don’t offer after-tax contributions in the first place and therefore render MBDR contributions impossible. The companies that tend to offer MBDR features are those where a significant percentage of employees are highly paid, often large tech firms. Some examples are Apple, Microsoft, Alphabet/Google, Amazon, Netflix, Meta/Facebook, Adobe, IBM, Wells Fargo, Target, Boeing, Cisco, Dell and Mastercard.
One kind of plan where the MBDR strategy can theoretically work well is a Solo 401k plan for self-employed persons with no employees (except for a spouse) since Solo 401ks are not subject to IRS nondiscrimination rules. However, many of the more popular Solo 401k providers such as Fidelity and Vanguard disappointingly do not offer MBDR features in their default plan documentation.
Anglia Advisors clients are welcome to reach out to me to discuss further.
WWW.ANGLIAADVISORS.COM | SIMON@ANGLIAADVISORS.COM | CALL OR TEXT: (646) 286 0290 | FOLLOW ANGLIA ADVISORS ON INSTAGRAM