.svg){kind=icon}
Why Can't a High Earner Just Write a $40,000 Check to a Roth IRA?
Income. Direct Roth IRA contributions phase out well below this household’s pay. The mega backdoor Roth is the workaround that only works if the 401(k) plan allows after-tax contributions and a quick conversion or in-service rollover to Roth.
In 2026 the employee elective deferral cap is $24,500. The overall 415(c) limit on all additions to a 401(k) — employee deferrals, employer match and profit sharing, and after-tax dollars — is $72,000 if you are under 50. Catch-up is separate: $8,000 at 50, $11,250 if you turn 60–63 this year. After-tax room is whatever is left after your deferral and the employer’s money. You contribute after-tax through payroll, then convert those dollars to a Roth 401(k) inside the plan or roll them to a Roth IRA. Basis comes out tax-free. Any earnings that accrue before the conversion are taxable that year. Do the conversion often and the earnings stay small.
The couple is 39 and 38 with a 7-year-old and a 4-year-old. Combined W-2 income is $515,000. He earns $395,000 at an employer whose plan allows after-tax contributions and in-plan Roth conversions. She earns $120,000 at a firm that only offers pre-tax and Roth elective deferrals, no after-tax bucket. They live in Texas. The house is worth $480,000 with $340,000 left on the mortgage. His 401(k) is $280,000. Hers is $95,000. Taxable brokerage is $85,000. Term life is already in force. They opened two 529s last year with token balances.
His plan matches 4% of pay, about $15,800. He already runs the $24,500 elective deferral as Roth. That leaves $31,700 of after-tax room before they hit $72,000. If payroll splits the $31,700 across the year and the plan converts it every pay period, almost no earnings pile up. The $31,700 sits in Roth from day one. Over 20 years at 7% that slice alone is roughly $123,000 tax-free, ignoring future contributions.
If they skip the after-tax piece and drop the same $31,700 into the taxable brokerage, the money is still theirs, but dividends and later gains are taxed along the way. At their bracket that drag is real. If her plan someday adds after-tax, she can run a smaller version. Right now she cannot.
This does not fit if the plan document blocks after-tax money or blocks in-service withdrawals and in-plan conversions. Then the after-tax dollars sit mixed with pre-tax money and a later rollover can trigger the pro-rata rule. It also does not fit if they need the cash for the next house or the 529s this year. After-tax 401(k) money is still plan money until you convert and, if you roll it out, until you satisfy the plan’s distribution rules.
Check the summary plan description for three lines: after-tax contributions allowed, in-plan Roth conversion allowed, in-service withdrawal of after-tax money allowed. Ask payroll how often conversions run. Watch the employer contribution so you do not blow past $72,000. The Roth IRA backdoor of $7,500 is a separate, smaller move and still has a Form 8606.
Numbers here are illustrative, not a recommendation for a specific household.
.svg)
