Mega Backdoor Roth: Contribute up to $70k in 2025

The Mega Backdoor Roth strategy is a standout option for those who want to maximize their 401k savings. This approach not only enhances your savings potential but also provides tax-free growth.

What is a Mega Backdoor Roth?

A Mega Backdoor Roth is an advanced method that allows individuals to save significant amounts of after-tax contributions within their employer sponsored 401k plan. This enables participant savings to grow tax-free. This strategy is particularly beneficial for higher-income earners who often exceed the annual Roth IRA contribution limits, which are currently capped at $6,500 for those under 50 and $7,500 for those 50 and older.

By utilizing employer-sponsored 401k plans that permit after-tax contributions, individuals can increase their retirement savings dramatically without facing immediate taxes. For example, your 401k plan can be setup to allow for a total contribution of $70,000 in 2025.

Why Employers Should Consider Offering This Option

Employers should strongly consider providing 401k plans that include the ability to execute the Mega Backdoor Roth strategy . As employees become more financially literate, benefits that offer tax advantages and higher savings potential are increasingly attractive.

Incorporating this strategy into retirement offerings not only positions employers as leaders in their industry but also boosts employee satisfaction and loyalty. Providing robust retirement savings options can significantly impact employee retention, making it a win-win for both employers and their teams.

Benefits of a Mega Backdoor Roth

Recruit, Retain, and Reward Top Tier Talent

Maximize Earnings for Business Owner

Tax Deferred Growth on Contributions up to $70,000

Increased Contribution Limits for 2025

The IRS frequently updates contribution limits to keep pace with inflation and to encourage savings. For 2025, the contribution limit is an impressive $70,000. If you are 50 or older, this limit rises to $77,500, which includes a catch-up contribution of $7,500. You could break it down like this:

• Base salary deferral: $23,500

• Additional catch-up contribution (for those 50+): $7,500

• Employer contributions: Varies

  
  

Moreover, in 2025, eligible participants aged 60 to 63 can take advantage of a "super catch-up," adding an extra $3,750. This allows certain individuals to contribute as much as $81,250, an incredible opportunity to boost your retirement savings.

Understanding Contribution Limits

Understanding the IRS-imposed contribution limits is essential when considering a Mega Backdoor Roth. Exceeding these limits can result in unnecessary tax penalties. Staying informed about contribution limits for 2025 ensures you can fully leverage this strategy while remaining compliant with IRS guidelines.

What Is The Catch?

To enable the Mega Backdoor Roth Strategy, the plan needs to pass all NDT and compliance tests or implement a safe harbor provision that includes an employer contribution. The plan document must permit after-tax contributions, the record keeper must handle the conversion, and the participant must be informed about the process. With proper guidance employers can feel confident in benefitting from this strategy. Save More, Pay Less Taxes