Mega Roths Can Help Calm Pre-retirees’ Fears

Editor’s note: Monica Dwyer is a longtime columnist with Rethinking65. Read more of her columns here. 

The beginning of each tax year is the perfect time to make sure your clients are optimizing their retirement savings accounts, whether in 401(k)s, 403(b)s, or 457s. This year brings some new changes, particularly for investors who turn age 60 to 63 by December. 31. If your clients are already maxing out their retirement saving options and have the budget and want to save more, they can supercharge their savings using the Mega or Super Roth option available in some retirement savings accounts.

With traditional pension plans largely disappearing and discussion that Social Security may be reduced in about a decade, more Americans are feeling pressure to save additional money in their 401(k)s or other employer-sponsored plans. Employees of nonprofits and government agencies — including hospitals, schools/universities and police/fire departments — often have 403(b) or 457 accounts, which work very similarly to 401(k)s.

What a Mega/Super Roth Is – and Is Not

The Mega/Super Roth still remains a hidden opportunity. Although this strategy has been legal since 2014, it remains largely unused by most plan participants. The strategy allows 401(k)/403(b)/457 accountholders to make after-tax contributions to their plan that are then converted to either a Roth within the plan or to a Roth IRA outside of the plan.

As with Roth IRA contributions, the Mega/Super Roth contributions are taxed in the year the contribution is made. Distributions avoid taxation as long as the participant is 59 ½ years old or older and started their Roth contributions at least five years prior to taking distributions.

Note that the Mega/Super Roth strategy is not the same as using a backdoor Roth IRA. With a backdoor Roth IRA, taxpayers make a non-deductible contribution into a traditional IRA (not into an employer-sponsored retirement plan), which is then converted to a Roth IRA. We do not address that strategy in this article.

If your client can afford the Mega/Super Roth strategy and their plan allows for it, the time to start is now. Congress has tried and failed to eliminate this strategy, and it is currently legal.

New Changes for 2025 and 2026

The IRS has raised the 2025 contribution limit for employer-sponsored retirement plans to $23,500. The catch-up contribution for employees age 50 or older by December 31 remains at $7,500. However, the Secure 2.0 Act allows taxpayers ages 60 to 63 to save 150% of the catch-up contribution, which is indexed for inflation — which means that their catch-up limit has increased to $11,250 for 2025. The total contribution amount allowed between employer and employee is $70,000, up from $69,000 in 2024, plus catch-up contributions for employees age 50+. For those age 64+, the catch-up contribution reverts to the standard amount for those 50 and over — $7,500 for 2025.

High-Income Earners in 2026 and Beyond

Starting Jan 1, 2026, a new requirement also goes into effect for high earners age 50+. As of that date, any individual who earned more than $145,000 in the prior calendar year (adjusted for inflation) may not make a pretax contribution, but they may make a catchup contribution as a Roth contribution. Originally this was set to begin in 2024; however, the IRS has issued guidance pushing that out two years as plan providers need time to adapt their technology and systems.

Below is a chart showing the maximum contribution by employee (for regular pretax or Roth), as well as the maximum contribution allowed from all contribution sources (pretax, Roth, employer and after-tax).

The Basics – Maximizing the Company Match

Before we discuss the bells and whistles of Super/Mega Roths, let’s first look at the obvious: Are your clients taking full advantage of their company’s match?

Making regular contributions that last throughout the full calendar year can be critical to making the most of your client’s company match. If your client contributes enough to maximize their contributions before the end of the year, the company match stops and that means your client may not be getting the full match that their company is offering.

For example, let’s say Lisa, age 40, earns $125,000 a year (approximately $2,400 a week) and contributes 30% to her 401(k). Her company matches 100% of that contribution up to 6% of her total income. By her 33^rd weekly paycheck, she will reach the maximum amount — $23,500 — that the IRS permits her to contribute this year. Because Lisa stops contributing before the end of the year, she misses out on 19 weeks of the company match, unless her company participates in the true-up match.

‘True-up Match’

Some companies offer a true-up match — making an extra contribution at the end of the year if it didn’t make the full contribution during the year. While this is better than missing out altogether on contributions, it isn’t ideal because the matching contribution comes later than if a participant had contributed throughout the whole year. It’s preferable to dollar-cost-average into the market to capture any potential investment gains rather than waiting for the true-up match to be contributed the following year.

Don’t forget to advise your clients to re-adjust their retirement contributions if any of the following happen:

• They receive a raise or a promotion that affects their pay.
• They receive a bonus lower or higher than anticipated and planned for.
• Their employer changes a retirement plan rule that impacts the amount the employee is allowed to contribute or the amount the company matches. This sometimes happens with a merger or acquisition, although a company can make the change on its own.

What Can You Contribute with the Super/Mega Roth?

The Super/Mega Roth is essentially accomplished through this three-step process:

1. The plan participant makes regular contributions to a retirement plan, and their company may match those contributions. These can be done pretax (allowing participants a tax deduction now) or as Roth contributions (allowing participants tax-free distributions in the future) if the plan permits.
2. The plan participant makes additional after-tax contributions to the plan. (After-tax contributions are generally not matched by employers, so think of Step 1 as the building block of your retirement strategy and Step 2 as the icing on the cake.)
3. The plan participant converts the after-tax contributions to a Roth source within the plan (or alternatively converts via rollover to a Roth IRA outside of the plan). We will discuss that more later.

Not all plans allow for Roth contributions, after-tax contributions or even conversions from after-tax to Roth. To determine if this strategy is possible, it’s necessary to find out the plan rules. Asking the retirement plan provider or the retirement plan administrator these questions can help determine what a plan does and does not allow. Note that plans update their rules regularly. If your client is not eligible for this strategy now, encourage them to check back yearly because plans do adopt new rules. If your client is an executive at the company, you may even suggest that they speak with human resources to request changing the plan rules to allow these types of contributions.

Who benefits from a Super/Mega Roth?

Participants most likely to use the Super/Mega Roth strategy fall into three categories:

Super Savers. These are the clients who are really good at saving. They are always looking for ways to optimize their savings and the Super/Mega Roth is a great way to do it, especially since regular Roth IRA contribution limits are set at $7,000 in 2025, plus a catch-up contribution of $1,000 per year for those age 50+ by December 31^st. (Note that Roth IRA contributions are subject to income limits.

Empty Nesters. These may be parents who have finished raising children, helped out with college and are now focused on ramping up their retirement savings goals. Their expenses have decreased, and they are ready to sprint to retirement. Maybe they would even like to retire earlier and are willing to make sacrifices now to do so.

High-Income Earners. High earners can’t put away as big a percentage of their income as lower income earners. Executives, doctors, lawyers and other high earners can use the Super/Mega Roth strategy to shelter more of their income so they can maintain the same standard of living in retirement that they enjoyed while working.

Note that all plans must satisfy testing requirements that confirm highly compensated employees (HCEs) do not disproportionately benefit from retirement plan contributions. Each participant is subject to these rules, and they may end up over-contributing to the plan, in which case they will get refunded without any tax penalty. This happens automatically by the plan and there is no way to predict if this is something that will happen to them.

Real World Examples

Let’s see how the Super/Mega Roth could help people in different categories contribute more this year to their retirement plans and boost their future tax savings.

Gary and Diane – Super Savers

Gary and Diane work for the same firm. They are in their early 30’s and their goal is to retire early. They are willing to forgo spending now so that they can reach their savings goals earlier. This year, Gary will earn $155,000 and Diane will earn $110,000. They both believe that taxes will rise in the future and last year they put all their 401(k) contributions into the Roth within their plans.

For Gary and Diane to contribute the full amount to a Roth IRA of $7k in 2025, their joint, modified adjusted gross income (MAGI) must be below $236,000. If their MAGI is between $236,000 and $246,000, then they can make a partial contribution, proportionately. If their MAGI is over $246,000, they are not allowed to make a Roth IRA contribution. (They could potentially do a backdoor Roth IRA contribution, but we are not going to cover that strategy in this article.) Note that for a single person, the MAGI limit is between $150,000 to $165,000. See IRS Publication 590-A, page 40 for a worksheet that shows you what income could be added back in determining MAGI for Roth IRA eligibility.

Because their modified adjusted gross income will exceed $246,000 in 2025, they won’t qualify to make Roth IRA contributions unless they make some of their contributions into their 401(k) as pretax contributions to get their MAGI below $236,000.

This year, Gary and Diane are working with a financial advisor who ran a financial plan for them. The advisor determined the couple would be best off, based on the planning assumptions, to contribute two-thirds of their 401(k) contributions into the pretax portion of their 401(k) plans and 1/3 into the Roth portion of the 401(k) plan. We break this down as follows;

Gary earns $155,000. His company matches 5% of his income. How can Gary contribute to a Roth IRA if the income limit for 2025 for married filing jointly is $236,000-$246,000?

Gary is allowed to contribute an additional $38,750 to the after-tax portion of his 401(k) and convert that to the Roth either inside this 401(k) plan or he can roll it to a Roth IRA if he prefers and if the plan doesn’t penalize him for it.

Diane earns $110,000 and the company’s match is 5%. Let’s calculate her allowable contributions:

Diane is allowed to contribute an additional $41,000 to the after-tax portion of her 401(k) and convert that to the Roth in her plan.

Note that Gary and Diane’s MAGI has decreased because they are contributing a total of $31,600 to the pretax portion of their 401(k) accounts. This allows them to do two things. One, they can make larger contributions because they are saving money on taxes. Secondly, they are now below the MAGI limit of $236k, thereby allowing them to each make $7,000 contributions to their Roth IRAs in addition to what they are allowed to make in the 401(k) plans. (Their MAGI would be calculated as $155,000 + $110,000 = $265,000 less $31,600 = $233,000. That is very close to the $236,000 limit and as an advisor, I would suggest that they consider increasing the pretax portion of their contributions to be sure that they are not going over the limit.)

For Gary and Diane, being able to employ the Super or Mega Roth strategy in their 401(k) plans is a huge benefit above and beyond the standard $7,000 that they would each be able to contribute to a Roth IRA account.

(For the sake of simplicity, we are assuming no income is generated from their after-tax investments or bank accounts. Clients should consult with their tax advisors before finalizing their strategies.)

In 2024, before seeking the guidance of a financial advisor, Gary and Diane were contributing $23,000 each into their 401(k)s.  Because they elected to do the entire contribution as Roth, they were unable to contribute to a Roth IRA. This year, based on the advisor’s recommendation, they are able to contribute the following:

(This doesn’t include what their company is also matching to their retirement plan.)

Gary and Diane went from contributing $46k to being able to contribute over $140k if they can afford it.

As a financial advisor, you need to stay ahead of what Gary and Diane can contribute to ensure their income is low enough to qualify for the Roth IRA in future years if that is their desire. It is important to look at their income, the income limits, the company match, and the maximum retirement plan contribution limits change as well as changes to the rules regarding the catch-up contribution.

Link to income limits for 2025 can be found here.

John and Terry  – Empty Nesters

John, 58, and Terry, 60, are married and would like to retire in five years. They prioritized their children’s needs as they grew up and supported them through college. John and Terry are ready to play catch up with their own retirement and have dreams of traveling and perhaps even owning a condo in a warm-weather locale. They are ready to commit to aggressive savings goals and have just paid off their house.

Their combined annual income is $400,000 ($200,000 each), which includes their base pay plus expected bonuses. John’s company allows pretax and Roth 401(k) contributions but does not allow after-tax contributions; therefore, he will not be allowed to do a Super/Mega Roth. John decides to max out his contribution to his 401(k) in pretax dollars. Terry has the option to do the Super/Mega Roth in her 401(k), but the plan will only allow her to do an “in plan” conversion. Here is what their savings could look like this year:

John’s total pretax contribution limit is $31,000 ($23,500 + $7,500 catch up).

John’s company will match 100% of his contributions up to 4% of his salary, which we calculate as $200,000 x .04 = $8,000. Between John and his company, the total contributions into his 401(k) will be $39,000, well below the total limit of $70,000 plus the catch up of $7,500 = $77,500. Since his company will not allow him to make any after tax contributions, he does not have the Super/Mega Roth option in his plan.

Because of the Secure 2.0 Act, Terry, 60,  will be allowed to contribute $23,500 plus the catch up contribution of $11,250 for a total of $34,750. Terry may contribute a total of $34,750, all in pretax, all in Roth, or a mixture of pretax and Roth depending on what she prefers. (Next year Terry will be required to put her catch-up contribution into the Roth portion of her 401k because she is a high-income earner. She decides she wants to do it all pretax this year while she can.)

Terry’s company will match 100% of her contributions for the first 4% of her salary and 50% of the next 2% of her salary, meaning that it will match a total of 5% of her income = $10,000.

How much more can Terry contribute to the after-tax bucket and convert to the Roth in her 401(k), which will allow her to max out her contributions? Use this worksheet:

For a couple previously not allowed to contribute to a Roth IRA because their income exceeded the annual limit for Roth IRA contributions of $230,000 to $240,000 in 2024, $36,500 is a huge sum to be able to contribute in after-tax funds that would then be converted to a Roth for one tax year. Even if they were eligible to contribute to a Roth IRA (based on income), together they would cap out at $16,000 in contributions ($8k each). This is more than double that amount. They could save even more if John had the Super/Mega Roth available in his plan.

Drs. Fred and Frankie – High-income earners

Drs. Fred and Frankie met when they were in residency together. They are heart specialists and are high-income earners. Fred works as a cardiologist for a private practice and earns $300,000 per year. The private practice does an automatic 3% match into a 401(k) of his salary regardless of whether he puts money into his retirement account or not. Frankie works as a cardiothoracic surgeon for a hospital and contributes to a 403(b) account. She will earn $360,000 this year and is entitled to a pension; therefore, the hospital does not contribute to her 403(b) account.

Fred and Frankie are both in their late 50s and are looking for a way to shelter as much money as possible from future taxation. Based on their savings rate and growth in their investments, they anticipate that their tax bracket will remain high in retirement.

The couple files their taxes jointly and they don’t qualify for Roth IRA contributions based on income.

Fred’s 401(k) plan allows him to do the Super/Mega Roth strategy within his plan. Here is what his contributions could look like for 2025:

Fred likes the idea of putting an additional $37,500 into the Roth bucket of his 401(k) account (through the Super/Mega Roth strategy), but he really likes investing in individual stocks. Fortunately for Fred, his 401(k) plan allows him to do a conversion/rollover into his Roth IRA — a brokerage account where he can trade individual stocks. Always check the plan rules to be sure that there is no penalty when doing the after-tax rollover/conversion! (If the plan does not allow a rollover and you or the client feel that the plan’s investment options are too restrictive, see if they have the option to do a brokerage account as a sub account of the retirement plan. Many firms offer this option but often clients may not be aware. Think of these accounts as smaller nesting dolls within the larger nesting doll of the original plan. They are all part of the plan, but some of the funds are placed into a brokerage account for additional investment options. Some of these accounts limit your investment options to ETF’s and Mutual Funds, and some even allow for stock trading.)

Frankie also wants to put in as much as possible into a Super/Mega Roth, and her plan allows it. So, Frankie does the following:

Because Frankie’s hospital doesn’t offer a match, she can contribute towards the Super/Mega Roth than her husband can. She would prefer to take this contribution and roll it into a Roth IRA outside of the plan to get more investing options, but the plan rules do not allow it.

In some cases, clients can make contributions to their 403(b) and a 457 plan, doubling their pretax contributions. Make sure to read the plan documents.

A Few Important Details

There’s a lot more to know about Super/Mega Roths. Here are some basics:

Automatic in-plan conversions

Some retirement plans allow automatic in-plan conversions. That means that as soon as money goes into the after-tax bucket, it is immediately converted to Roth. It is ideal if the plan offers this because then there is no growth of those after-tax funds prior to conversion.

If a retirement plan doesn’t allow for automatic after tax to Roth conversions and the after-tax funds have grown since contributing to the plan, the plan will either:

1. Allow the participant to convert the growth on the after-tax funds and pay taxes in the year they convert it to Roth.
2. Allow the participant to leave the growth from the after-tax funds in the pretax source of the plan and convert only the after-tax contributions to Roth, avoiding any additional taxation for the current calendar year. Doing more frequent, or better yet, automatic conversions of the after-tax money will minimize or eliminate this issue.

Keeping the Roth in a retirement plan vs. rolling over to an IRA

Some investors or advisors prefer the investment options available in a Roth IRA brokerage account to the limited investments in a participant’s retirement plan. In that case, if the plan rules allow it, they can convert and roll over the after-tax money instead of leaving it in the plan. Keep in mind that any other legal or cost advantages of keeping money in the retirement plan — such as federal protection from lawsuits, lower fee mutual funds, or guaranteed investment contracts (GIC’s) that are available in the plan — may not be available in a Roth IRA. Check the laws of your client’s state of residence and the retirement plan options to make the best decision.

Separate designations may be available

Some companies have a separate designation for withholding from regular paychecks vs. bonus checks. This can be nice if you are trying to manage a client’s cash flow. For example, if the client doesn’t normally use their bonus money for essential living expenses, they can make a larger contribution from their bonus into the retirement plan, so their goals are met without hampering their cash flow as much.

Do your homework

Please refer to this list of important questions. Most clients wouldn’t feel comfortable asking the provider all these questions. Calling the provider with your client on the phone so that you can keep a record of the provider’s answers can be a great service for your clients. Since plans change their rules from year to year, it wouldn’t hurt to call periodically to see if there are any updates. Also see this flowchart for additional details.

Avoid plan penalties

Make sure that any conversions of after-tax funds to an outside Roth IRA will not trigger a penalty by the plan. Penalties usually preclude the client from being able to contribute to their plan for a specific period, which also means they will forget the company match during the penalty period.

Summary

Advisors can add a lot of value to helping by clients maximize their retirement contributions as well as the company match. This strategy is one of many which pays to utilize if your clients have the means and desire to make these contributions. It is once piece to the overall puzzle of helping your clients save more, pay less in taxes, and build an amazing future!

Monica Dwyer, CFP, CDFA, is a licensed investment adviser representative with Harvest Financial Advisors, LLC in the Cincinnati/West Chester, Ohio area. She may be reached at monica@harvestadvisors.com. This article is for informational purposes only. Any commentary and third-party sources are believed to be reliable but Harvest Financial Advisors cannot guarantee their accuracy.