High earners can save up to $70,000 in their 401(k) accounts in 2025 by utilizing a sophisticated strategy known as the mega-backdoor Roth. This advanced approach allows individuals to contribute significantly more to their retirement savings than the standard annual limits.
Understanding the Mega-Backdoor Roth Strategy
The mega-backdoor Roth is a multi-step process that enables employees to direct a substantial portion of their earnings into workplace retirement accounts, specifically into a Roth 401(k) or Roth IRA, beyond typical contribution limits. This strategy is particularly appealing to those who exceed the income thresholds for direct Roth IRA contributions.
Here's a breakdown of the three key steps involved:
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Max Out Standard 401(k) Contributions:
The first step involves contributing the maximum allowable amount to your traditional pre-tax 401(k) or Roth 401(k). For 2024, the employee contribution limit is $23,000, with an additional $7,500 catch-up contribution for those aged 50 and over (totaling $30,500). While specific 2025 limits will be announced, this initial contribution forms the foundation of the strategy. -
Make After-Tax 401(k) Contributions:
Once you've maximized your regular 401(k) contributions, you can then contribute additional funds to your 401(k) on an after-tax basis. This is distinct from Roth contributions, which are also after-tax but have different rules. The ability to make these after-tax contributions depends on whether your employer's 401(k) plan specifically allows them. This is where the bulk of the "extra" savings comes from, pushing your total contributions towards the overall limit. -
Convert After-Tax Contributions to Roth:
The final and crucial step is to convert these after-tax contributions into a Roth account. This can be done through an "in-plan Roth conversion" (moving funds from the after-tax 401(k) to a Roth 401(k) within the same plan) or by rolling the funds over into a Roth IRA. This conversion makes future withdrawals of both contributions and earnings tax-free in retirement, provided certain conditions are met.
The $70,000 Limit in 2025
The ability to contribute up to $70,000 to a 401(k) in 2025 is made possible by this comprehensive strategy. This total limit encompasses all contributions to your 401(k) in a given year: your pre-tax or Roth contributions, your employer's contributions (matching or profit-sharing), and your after-tax contributions.
Here's an illustrative example of how contributions can add up to the total limit:
| Contribution Type | Description
