The Mega Backdoor Roth for Business Owners: Contribute $70K+ Tax-Free
Your 401(k) has a $70,000 total limit — not $23,500. The difference is the most powerful Roth strategy for high earners.
Everyone knows the 401(k) limit: $23,500 ($31,000 if over 50). What most people don't know is that the total annual plan limit including all contributions is $70,000 (2025). The gap between $23,500 and $70,000 is where the Mega Backdoor Roth lives.
The Mechanics
Step 1: Max your regular 401(k) deferral ($23,500 or $31,000). Step 2: Employer match/profit sharing goes in (say $15,000). Step 3: That leaves $31,500 in headroom. You contribute that as after-tax (non-Roth) contributions. Step 4: Immediately convert those after-tax dollars to Roth via an in-plan conversion.
The conversion is tax-free on the contribution amount — you already paid tax on it. Only earnings between contribution and conversion are taxable (which is near-zero if you convert immediately).
Over 15 years at $40,000–$50,000/year, that's $600,000–$750,000 in a Roth account growing and withdrawing tax-free for life.
Requirements
Your plan document must specifically allow after-tax contributions AND in-plan Roth conversions. Most standard plans don't — this requires a custom amendment. You also need to pass ACP nondiscrimination testing or run a safe harbor plan. This is plan design work.
Who This Fits
High-income contractor-owners who've already maxed their regular 401(k), want tax-free retirement income, and have the cash flow to contribute $40K–$50K/year beyond their standard deferral. Pairs perfectly with a stacked DB plan for maximum retirement tax optimization. See the full tax strategy guide.
Want to Know If This Strategy Fits Your Business?
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