Wealth Management

Building Tax-Free Retirement Savings with a Mega Backdoor Roth

Oppenheimer & Co. Inc. March 23, 2026

Roth IRAs are a favored tool for retirement savings, offering tax-free qualified withdrawals after age 59½, and in some cases even earlier. For many individuals, the advantages of Roth IRAs can outweigh those of traditional IRAs and qualified retirement plans. However, high earners may face challenges accessing Roth IRAs due to income limits.

Roth IRA Income Limits:

For the 2025 tax year, Roth IRA contributions phase out for higher earners:

  • Single filers: $150,000–$165,000 (contribution not permitted if above $165,000)
  • Married filing jointly: $236,000–$246,000 (contribution not permitted if above $246,000)
  • Note: For 2026, limits are expected to increase to $168,000 for single and $252,000 if married and filing jointly.

While these limits can restrict direct Roth IRA contributions for high-income earners, those with access to a 401(k) plan can still take advantage of Roth benefits through Roth 401(k) contributions, in-plan conversions, or a Mega Backdoor Roth strategy.

Leveraging a 401(k) for Roth Contributions:

High earners can use 401(k) plans to enjoy the perks of Roth savings in three main ways:

1. Roth 401(k) Contributions: Unlike Roth IRAs, Roth 401(k) contributions have no income eligibility limits. While these contributions are not tax-deductible, qualified distributions are entirely tax-free.

  • Contribution limits: $23,500 in 2025 and $24,500 in 2026 (applies to traditional 401(k), Roth 401(k), 457(b), and 403(b) plans).
  • Catch-up contributions:
    • $7,500 in 2025 for those 50 + (8,000 for 2026)
    • Age 60–63 “super catch-up”: $11,250 in 2025 and 2026 if the plan allows
  • SECURE 2.0 Roth catch-up rule: Starting in 2026, high earners who meet certain FICA thresholds (over $150,000 prior-year wages) must make any catch-up contributions on a Roth basis.

2. In-Plan Roth Conversions: Many 401(k) plans allow in-plan conversions, enabling participants to convert non-Roth amounts (pre-tax contributions) into Roth amounts. This conversion triggers taxable income but positions the funds for future tax-free growth.

3. Mega Backdoor Roth Strategy: For eligible participants, the Mega Backdoor Roth allows for substantial additional contributions to a Roth account within a 401(k) plan.

How Does a Mega Backdoor Roth Work?

  • After-Tax Contributions: Some plans allow contributions beyond standard salary deferrals and employer matches. These are separate from Roth contributions.
  • Immediate Conversion to Roth: If the plan allows in-plan conversions, you can convert these after-tax contributions to Roth. Any earnings before conversion are taxable, but contributions themselves are not.
  • Annual Additions Limit:
    • 2025: $70,000
    • 2026: $72,000
    • Note: Catch-up contributions (age 50+) are not included in these limits.

Potential Challeneges:

  • Your 401(k) must allow Roth contributions, in-plan conversions, and after-tax contributions.
  • After-tax contributions are subject to non-discrimination testing, which can limit contributions for highly compensated employees. Plan design (including features such as safe harbor provisions) may reduce, but not necessarily eliminate, these constraints.

For high-income earners unable to contribute directly to a Roth IRA, the Mega Backdoor Roth provides a powerful way to build tax-free retirement savings. By leveraging the flexibility of 401(k) plans, you can overcome income limits and maximize long-term tax advantages.

Because the mechanics can be complex, it is recommended to consult with your Oppenheimer Financial Professional and tax advisor for guidance on your specific situation. Find one in your area here.

DISCLOSURE

©2026 Oppenheimer & Co. Inc. Transacts Business on All Principal US Exchanges and is a Member of SIPC 8832945.1

The information contained herein is general in nature, has been obtained from various sources believed to be reliable and is subject to changes in the Internal Revenue Code, as well as other areas of the law. Neither Oppenheimer & Co. Inc. (“Oppenheimer”) nor any of its employees or affiliates provides legal or tax advice. Please contact your legal or tax advisor for specific advice regarding your circumstances. This material is not a recommendation as defined in Regulation Best Interest adopted by the Securities and Exchange Commission.

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