What is the Difference between a Mega Backdoor Roth and Backdoor Roth IRA?

High income earners have a couple of different options as far as moving money into tax advantaged savings vehicles, but those options are confusing to understand, and contain terminologies that can mean different things.  

This article will cover both the Mega Back-Door Roth (MBDR) and Backdoor Roth (BDR), keep differences and similarities, how to actually implement, and other various considerations for both.  I’ll abbreviate both terms throughout the article. 

What is the MBDR? 

The Mega Backdoor Roth (MBDR) allows high earners to contribute significantly more to Roth accounts by leveraging after-tax 401(k) contributions. While regular 401(k) contributions are limited to $24,500 (2026), the total contribution limit including employer match and after-tax contributions is $72,000. 

The "mega" part comes from converting these after-tax 401(k) dollars directly to a Roth IRA or in-plan Roth 401(k), potentially allowing $40,000+ in additional Roth contributions annually—far exceeding the $7,500 Roth IRA limit.

What is the BDR? 

The Backdoor Roth (BDR) is a workaround for high earners who exceed Roth IRA earned income limits ($153,000+ for single filers in 2026 and $242,000 for joint filers). This number is based on modified adjusted gross income.  Since there are no income limits on traditional IRA contributions or Roth conversions, you contribute $7,500 to a traditional IRA (non-deductible due to high income), then immediately convert it to a Roth IRA. 

This two-step process effectively allows anyone to make Roth IRA contributions regardless of income level.

Key Differences: 

The fundamental difference in each are below:

• MBDR can potentially move a much larger amount annually into Roth accounts versus BDR's $7,500 limit. 

• MBDR requires employer plan participation with specific features (in-service distributions or in-plan Roth conversions), while a BDR only needs access to traditional and Roth IRAs. 

• Income limits affect both differently—BDR specifically targets those above Roth IRA income thresholds, while a MBDR has no income restrictions but requires high contribution capacity. 

• The tax implications also differ: MBDR conversions are typically tax-free while BDR conversions may trigger taxes if you have existing traditional IRA balances (pro-rata rule).

• The MBDR is conducted through your 401k with your employer vs a BDR is conducted essentially on your own with accounts you self-manage and establish.  

Key Similarities: 

• Both strategies circumvent traditional Roth contribution barriers for high earners and result in tax-free growth and withdrawals in retirement. 

• Each requires a two-step process (contribute then convert) and benefits from immediate conversion to minimize tax complications. Both are perfectly permissible in the eyes of the IRS, though they exploit technical loopholes that could theoretically be closed by future legislation. 

• Both the Roth 401k and Roth IRA accounts grow tax free, and can be tax free once withdrawals are taken.

My thoughts on both and when they are appropriate:

• The MBDR is typically more automated and less cumbersome to start vs the Backdoor Roth.  

• For early retirees, doing both in tandem with a brokerage account can be beneficial.

• If you have an existing traditional IRA account open with other investments, it can make conducting the backdoor roth very cumbersome and sometimes not worth it.

• Both strategies rely on assumptions.  It is important to understand that predicting future tax rates and legislation is very difficult if not impossible, and it is best to look at these strategies from the perspective of your current situation.

• If you are not able to maximize your 401k contributions then neither strategy may make sense at the current time.  

  
  

How to implement the Mega Back-Door Roth: 

First, verify your 401(k) plan allows after-tax contributions and either in-service distributions or in-plan Roth conversions—contact HR or your plan administrator. 

Second, Maximize your regular 401(k) contributions ($24,500), then contribute after-tax dollars up to the annual limit ($72,000 minus your regular contributions and employer match). 

Then execute the conversion immediately: either roll after-tax contributions to a Roth IRA (if in-service distributions are allowed) or convert to your plan's Roth 401(k) option. Automate this process if possible—many plans allow automatic conversions.  A call to your plan provider typically helps facilitate this.

Review your contribution options on an ongoing basis, including plan contribution limits, your specific savings and goals each year.

How to implement the Back-Door Roth: 

Understand and confirm the Income Limits and your own income.  If your income drops below the Roth IRA limit then just contribute directly to your Roth.

Open a Traditional IRA if not already open at the same firm you open your Roth IRA with.  

Make Contribution to the Traditional IRA.  It is crucial to ensure that this contribution is marked as non-deductible on your tax return, as this will prevent you from being taxed on the amount when you convert it to a Roth IRA.

Wait 1-2 days for the Contribution to Settle

Convert to a Roth IRA.  This can be done by contacting your financial institution and requesting a conversion. 

Report on Your Tax Return.  When filing your taxes, you must report the non-deductible contribution and the conversion. Use IRS Form 8606 to report the non-deductible contribution to the Traditional IRA and the conversion to the Roth IRA. This form ensures that you are not taxed on the converted amount, as you have already paid taxes on the contributions.

Understanding these concepts and the subjective perception of tax ramifications now is fairly complex.  Through my work, I often help individuals distinguish between the two, determine if any of these methods of saving make sense for individuals, while maintaining a goal of simplicity in finances.  If you feel you want support, guidance, and validation that these strategies make sense for you, consider reaching out to learn more!