It's up to you to calculate how much of the Roth conversion is tax free using form 8606.

You put in your non deductable contribution into line 1, any carry over basis from previous years in line 2, the total value of all your traditional IRAs (value at EOY 2024) on line 6, the amount Roth converted on line 8, follow the instructions to calculate the non taxable portion of your conversion. Then you save the left over value in line 14 and put that on line 2 for next year's 8606 and you get to carry whittle that number down over for the rest of your life or until you zero out the IRA

permabull said:

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Do they say you have to max it out or that it's an additional option after you have maxed it out. I can't find any law that has any of these requirements, especially the income requirement. I can into a lump sum of money a few years ago and set my withholdings at work to 50% to siphon it into a Roth and I was well below those income numbers.

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Nerd Wallet says "Executing the mega backdoor Roth means throwing all of your after-tax savings into your after-tax bucket (once you've maxed out your regular 401k contribution limit)."

The Motley Fool has a checklist for eligibility that includes "You max out your employer's annual 401k, 403b, or 457 plan, or your solo 401k."

Forbes says "To participate, you must have maxed out your employer's retirement saving plan in pre-tax dollars."

Empower says "With a mega backdoor Roth, you may be able to contribute an additional $43,500 toward retirement (in 2023) on top of your regular plan contribution limits."

Both Empower Motley Fool talk about having to earn above a certain amount, but it's done in the context of being unable to contribute to a traditional Roth because you earn too much money (not as a criteria or rule specifically for the mega backdoor Roth).

But everyone knows the backdoor Roth loophole to get around income limits. Those of us who moved to the mega backdoor often did so because we couldn't do the backdoor Roth anymore because we already have a traditional IRA with pre-tax dollars.

I will say, if you can afford it, the mega backdoor is better option than the "traditional" backdoor Roth, even if you can still do the "traditional" backdoor Roth, because you can contribute so much more via mega backdoor.

No one is getting "retirement rich" contributing $7k a year to a Roth IRA. Being able to contribute up to $70k ($77,500 if you are 50+) is where the real savings opportunity lies.

I actually can't find anything on the IRS website that addresses mega backdoor Roths. Only rollovers to a Roth IRA (the pro rata rule).

In a mega backdoor Roth, you aren't necessarily rolling over after tax contributions to a Roth IRA. You could also be rolling them over to a Roth 401k. Fidelity specifically says that the conversion is to a Roth 401k, but it leaves the door open for general "in-service withdrawals". So, it's a little confusing/murky.

Fidelity also says all of this is at the discretion of the employer (sounds like the employer makes the "laws").

Fidelity website also says you have to pay taxes on any earnings included in the conversion (even for MBDR). I assume Fidelity is ensuring that they only roll over my contribution, because I have not had any taxable events in the two years I've been doing this. My after-tax contributions are also being invested exactly the same as my pre-tax 401k contributions, so my rollover is to a Roth 401k. I don't have the option to change that.

TXTransplant said:

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My after tax contributions weren't automatically converted to a mega backdoor Roth. Had I just made them and not called Fidelity, they just would have gone into my regular 401k.

However, I only had to do a one-time call. Once I did the initial set up, all of my after-tax contributions are automatically converted, and I don't have to do any additional follow-up. I can also adjust the contribution percentage online, and it all converts.

But, since I am maxing out my pre-tax contributions, there is no option other than this. So maybe that simplifies things for Fidelity?

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Thank you for that. My plan might offer the same but it wouldn't be a fit for me due to brokerage complications.

My Fidelity 401k has the standard core plans offered by my employer, and it also allows me to invest 95% of my portfolio in Fidelity's brokerage. There's a standard brokerage which contains pre-tax and after-tax money (they keep the sources separate for tax reporting) and a Roth brokerage. I like the brokerage much better than the core plans because of the investment flexibility. Many more options, so I keep 95% invested there.

To do a Roth conversion of after tax, I have to first liquidate a holding in the standard brokerage. I then call Fidelity and ask them to convert it to Roth. They transfer the money into a core plan first and then convert it to Roth. I have to call them again after that and ask for all the Roth money to transfer into the Roth brokerage.

Which brings up a second point. I'm pretty sure there's not a legal restriction on having to max out the $23.5k standard limit first before doing a MBDR. My most recent conversion was in January. I started that convoluted process on Jan 6 and finished by Jan 10, all within a week, and that was before I had deposited any money toward my 2025 $23.5k limit. I had just deposited that after-tax money in Dec, so there wasn't any meaningful earnings to generate tax liability.

I think they say "do your $23.5k first" because they don't want you to overload on after-tax money early in the year and constrain yourself from hitting the $23.5k limit (or supplemental catch up). As you know there's a $77.5k limit this year which includes the $23.5k limit and $7.5k limit, or a total of $31k, meaning you could MBDR $46.5k. But if you exceed that $46.5k before you hit the $31k, then you limit your tax-deferred contributions AND any associated employer match, which would be a mistake.

That sounds like a complicated routine! I don't have the option to reinvest my after-tax contributions, and all things considered, I think I like not having any other option. No FOMO.

You make an interesting point about after-tax contributions, though - obviously at this point in the year, I haven't maxed out anything. But each of my twice monthly contributions are distributed as a pre-tax and a post-tax, and the post-tax is converted to a Roth within a few days of payroll.

That makes me think the devil is in your plan details and how you specify your contributions. I can specify pre-tax contributions, Roth contributions, or after-tax contributions. I don't want to mess with my settings, but I don't think I can set both pre-tax and Roth to 0.

But, if I could set them to 0, any after tax contributions I make under $23,500 would just end up in a Roth 401k - which is where my post-tax contributions in excess of $23,500 are ending up anyway. Post-tax contributions wouldn't technically be "mega BDR contributions" until I exceeded the initial $23,500. They would just be Roth 401k contributions, albeit made via a more difficult route.

The big difference is if you want the tax break that comes with the pre-tax contributions. I think that's why the distinction matters.

The mistake would be setting both to 0 but making after tax contributions to a 401k and NOT calling to request the MBDR, because that conversion isn't automatic. You never want to put ANY after-tax contributions in a 401k and just leave it there if you have the MBDR option. You'll end up paying tax again at withdrawal. Since you have to call for MBDR, at that point, I would hope the plan admin would ask why both the pre-tax and Roth contributions were set to zero and you only have after-tax contributions. Obviously, there are reasons you might do this, but I would think it's the exception rather than the norm.

Put a different way, the options are as follows:

Put $23,500 into a 401k pre-tax
Put some amount over $23,500 into your 401k post-tax and then convert it to a Roth 401k via mega backdoor Roth.
In this case, you have both a 401k and a Roth 401k, and the Roth 401k only contains "excess contributions". At retirement you can pull from either the 401k OR the Roth 401k.

OR
Put $23,500 into a Roth 401 after tax.
Put some amount over $23,500 into a 401k after tax and then covert it to the Roth 401k via mega backdoor Roth.
In this case, you have no 401k, except as a "holding" account for the excess contributions. All of your money is in a Roth 401k.
In this case, you still have to specify MBDR, otherwise your after tax contributions will just stay in your 401k, and you'll pay tax again at withdrawal.

OR

Put some combo of the initial $23,500 into a 401k and Roth 401k, and then make excess post-tax contributions to a 401k that get converted to a Roth 401k. In this case, you also have retirement funds in both a 401k and a Roth 401k.

I literally had to go through this whole thing in my head to make it make sense. The loopholes of backdoor Roth conversions ("regular" or "mega") are so incredibly stupid. Congress just needs to raise the limits for everyone and be done with it. How much you are allowed to save should not depend on how much you make or what kind of plan your employer offers.

TXTransplant said:

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The loopholes of backdoor Roth conversions ("regular" or "mega") are so incredibly stupid. Congress just needs to raise the limits for everyone and be done with it. How much you are allowed to save should not depend on how much you make or what kind of plan your employer offers.

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Amen!

They make it harder than it needs to be.

And as you, I, and others have learned, there is not a clear set of instructions with details. We have to learn as we go, and much of it depends on our individual employer plans. Mine does not explain all of this. I've had to figure it out by trial and error along the way. Uggh.

Thanks. Further research on my part lead me to that conclusion.

I guess I am going to jail then because I contributed to Roth directly, mega back door Rothed the same year that I didn't max out my pretax.

I think for your situation (job change/change in 401k) that makes sense.

I suspect if you tried to do that with the same employer/same plan, when you called to request the MBDR, they would have redirected you (or possibly not allowed it).

Because putting money up to $23,500 directly in a Roth 401k basically winds up in the same place as after tax contributions to a 401k that you convert via MBDR (assuming you MBDR to a Roth 401k and not some other Roth IRA). The conversion is just an extra (unnecessary) step.

Everything I've read, the MBDR was intended for contributions in excess of $23,500.

Seems like the loophole has loopholes, though. Which is just ridiculous.

I think we will just have to agree to disagree on this one.

If it was such and obvious requirement it shouldn't be hard to point the the law that requires it.

The articles you linked contradict each other (i.e. you mentioned one said you had to be above the IRS limit to contribute to a Roth directly in order to mega back door). I doubt they are written by CPAs or CFPs and they are just part of the echo chamber of repeated financial advice.

permabull said:

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I think we will just have to agree to disagree on this one.

If it was such and obvious requirement it shouldn't be hard to point the the law that requires it.

The articles you linked contradict each other (i.e. you mentioned one said you had to be above the IRS limit to contribute to a Roth directly in order to mega back door).I doubt they are written by CPAs or CFPs and they are just part of the echo chamber of repeated financial advice.

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The articles don't contradict each other, but they are a little confusing.

What one said is that above a certain income limit, you can't contribute directly to a Roth IRA, and that is true. The article stated that you have to be above that income to do a mega backdoor, but I don't actually think that is true. However it does stand to reason that someone who is no longer eligible to contribute to a Roth IRA would consider a mega backdoor Roth through their 401k instead. And I think that's the point the article was trying to make. Also, you have to be a pretty high income earner to afford to contribute more than $23,500.

I think it is clear that MBDR was intended to be contributions in excess of the $23,500. EVERY website (not just the ones I mentioned) say this.

As I mentioned previously, there is nothing on the IRS website about MBDR. Probably because it's not a "law", it's actually a loophole around existing laws. How you utilize this loophole is at the discretion of your employer and plan admin.

And if you are contributing to the same 401k all year (you don't change employers or plans), it makes absolutely zero sense to make any contributions <$23,500 as post-tax 401k and then convert them to a Roth 401k mega backdoor Roth. Because you can contribute up to $23,500 DIRECTLY to a Roth 401k for a lot less paperwork.

lotsofhp said:

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I'm above the income limit in 2024 for contributing directly into a Roth IRA

I used to use a financial advisor to do this but I've moved everything over to Fidelity as people have told me it's not a big deal to do it yourself.

I called Fidelity and it was basically just:

1. Transfer $7k into my Fidelity account
2. Transfer the $7k into the traditional IRA
3. Transfer the $7k into the Roth IRA

I've already done that and now I'm thinking surely I did something wrong as that took all of 5 minutes. Is there something I missed here and just don't know it?

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All good BUT know the pro rata rule first.