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As a CPA, you are often the advisor high earners turn to when they have maxed out their elective deferrals and still want to build tax-advantaged retirement savings. After-tax (non-Roth) 401(k) contributions, paired with the “Mega Backdoor Roth” strategy, can move significant additional dollars into Roth treatment for clients whose plans are designed to allow it. Understanding the mechanics, the plan-design prerequisites, and the current limits will help you spot the opportunity and flag the risks before year-end.
After-tax contributions are a distinct contribution bucket, separate from both pre-tax elective deferrals and designated Roth deferrals. Their ceiling is the IRC Section 415(c) annual additions limit, which caps the total of all employer contributions, employee contributions, and forfeitures allocated to a participant’s account (excluding earnings). For 2026, the Section 415(c) limit is the lesser of 100% of compensation or $72,000, with catch-up contributions permitted on top of that amount.
Because after-tax contributions are neither pre-tax nor Roth elective deferrals, they do not count against the Section 402(g) elective deferral limit ($24,500 for 2026) but do count toward the Section 415(c) limit. In practical terms, a high-earning participant’s after-tax capacity usually equals the $72,000 limit minus all other annual additions — including pre-tax and Roth elective deferrals, employer match, nonelective contributions, and allocated forfeitures — but excluding catch-up contributions.
Nondiscrimination testing is a key consideration. After-tax employee contributions are tested under the Actual Contribution Percentage (ACP) test of IRC Section 401(m), the same test that applies to employer matching contributions. Employee after-tax contributions remain subject to ACP testing even if the plan’s matching contributions qualify for an ACP safe harbor. Because after-tax contributions skew heavily toward highly compensated employees, plans that permit them frequently risk ACP failures. It is important to keep a plan’s wage demographics in mind when assessing these types of contributions.
The Mega Backdoor Roth is a two-step strategy: (1) the participant makes after-tax contributions, and (2) those amounts are converted to Roth through an in-plan Roth rollover. The after-tax principal converts to Roth tax-free, since it was already taxed; only earnings attributable to the after-tax amounts are taxable as ordinary income in the year of conversion. Prompt conversion — on the same day or within a few days of the contribution — minimizes taxable earnings. Because of this, many plans offer automatic or frequent in-plan Roth rollover features.
Two provisions must be present in a plan before participants can take advantage of the Mega Backdoor Roth strategy:
It is important to review the plan document before attempting to utilize this strategy.
The Mega Backdoor Roth has no income limit, unlike direct Roth IRA contributions, which phase out based on MAGI.
Because these strategies depend on precise plan design and coordinated administration, CPAs should encourage clients to review plan provisions with their third-party administrator and ERISA counsel before year-end. Early planning can identify available after-tax capacity, confirm conversion mechanics, and address nondiscrimination testing.
