The Mega Backdoor Roth is a strategy designed to maximize contributions to a Roth by utilizing after-tax contributions to a 401(k) plan. By year-end, taxpayers need to evaluate and execute specific elections to ensure compliance with IRS regulations and to maximize tax benefits.
A Mega Backdoor Roth Election Form is a document used by participants in 401(k) plans to authorize after-tax contributions and subsequent conversions to Roth accounts.
This post details the Mega Backdoor Roth Election Form that is required. We also discuss some FAQs. Let’s jump in.
Overview
A Mega Backdoor Roth is a retirement savings strategy for high-income earners. This strategy involves making after-tax contributions to a 401(k) and converting them to Roth. Roth accounts grow tax-free, offering significant long-term benefits. You can find the annual 401(k) limits below:
| 401(k) Contribution Limit for 2026 | Amount |
|---|---|
| Deferral for under age 50 | $24,500 |
| Deferral for age 50-59 & 64+ | $32,500 |
| Deferral for age 60-63 | $35,750 |
| Maximum for under age 50 | $72,000 |
| Maximum for age 50+ | $80,000 |
| Maximum for age 60-63 | $83,250 |
To take advantage of this strategy, you must meet the following conditions:
- The 401(k) plan document must allow after-tax contributions and in-plan Roth conversions.
- There can be NO eligible employees (other than owner and spouse).
- The amount of non-Roth after-tax contributions may not be more than 100% of your plan compensation. In addition, the total combined elective deferral contributions and after-tax contributions may not exceed 100% of your plan compensation.
What is a Mega Backdoor Roth Election Form?
A Mega Backdoor Roth Election Form is a document used by participants in certain employer-sponsored retirement plans, such as 401(k)s, to authorize after-tax contributions and subsequent conversions to Roth accounts. This strategy, known as the “Mega Backdoor Roth,” allows individuals to contribute amounts beyond the standard pre-tax and Roth deferral limits, up to annual limits noted above.
To utilize this strategy, your employer’s retirement plan must permit after-tax contributions and either in-service withdrawals or in-plan Roth conversions. The election form typically requires you to specify the amount of after-tax contributions you wish to make and may include options for automatic conversion of these contributions to a Roth account. Completing this form ensures that your contributions are processed according to your preferences and in compliance with plan provisions.
It’s important to note that not all employer-sponsored retirement plans offer the features necessary for a mega backdoor Roth strategy. Therefore, it’s advisable to consult your plan administrator or a financial advisor to determine if this option is available and suitable for your financial situation.
Mega Backdoor Roth Election Form FAQ
How can I learn more about the Mega Backdoor Roths and how they work?
Here are some resources that we have written on various Mega topics:
- We have a detailed FAQ section on our FAQ page here.
- Mega Backdoor Roth: Why must I make an election by year-end
- How to determine gain on conversion from after tax to Roth
- Mega Backdoor Roth IRA
Here are some IRS resources:
How do I know if my 401(k) plan has a Mega Backdoor Roth option?
If you have an Emparion 401(k) plan, our plans include the Mega Backdoor Roth option by default. If you have a plan from another plan provider, you’ll want to check with them.
If your plan was set up through Schwab, Fidelity, Vanguard, or another custodian, the plan likely does not allow for a Mega Backdoor Roth. You will have to amend the plan to adopt the Mega provisions.
Why do I have to fill out this Election Form?
The IRS requires employee deferrals, including after-tax contributions, to be elected before year-end, as stated in IRS Publication 560.
Do I have to have separate investment accounts for the pre-tax, after-tax and Roth contributions?
You should establish separate investment accounts. Some clients will open a separate investment account for each of the three contribution types. However, we recommend that you open at least two accounts: one pre-tax and one Roth. The election form will be evidence of the intent to fund the after-tax amount and the related Roth conversion.
You can use your plan document, go to the custodian, and have them open separate accounts. But make sure you track the different accounts and name them accordingly, so they are not confused in the future. Contributing amounts to the wrong accounts can have serious consequences.
Can I contribute amounts directly to a Roth IRA or must they go through the 401(k) account first?
You cannot fund a Mega Backdoor Roth contribution directly into a Roth IRA. Roth IRAs have annual contribution limits. The 401(k) plan document is what allows you to make the substantial after-tax contribution.
As such, your initial contribution should go into your 401(k) account and then can be distributed or rolled over to a Roth IRA pursuant to your plan document. You must complete this two-step process.
Do I have to roll over the after-tax contribution into a Roth IRA?
Yes. While the after-tax contribution itself functions like a Roth, you must roll the funds over to a Roth IRA immediately so that future earnings will be treated as tax-free upon distribution. This is referred to as the “pro-rata” rule.
Your Mega Backdoor Roth plan document should allow for an in-service distribution. Your financial advisor should be able to assist you with this.
Where or how do I report the after-tax contribution?
We will report the after-tax contributions on form 5500.
What if I am still determining whether or not I want to do the after-tax contribution?
You must make the election for the deferral and after-tax before the plan year-end. However, you do not have to determine by year-end whether you will make a profit-sharing contribution. That will add some cash flow flexibility for next year.
Do I have to include my profit-sharing company contribution on this Form?
No. This form is only for employee deferrals and elected after-tax contributions. You should not include any information regarding a profit-sharing contribution on this form.
What if I change my mind after year-end?
Unfortunately, the IRS does not have any provisions if you change your mind after year-end. Feel free to contact us to discuss.
Will you be issuing a 1099-R for contributions made to the after-tax portion?
We will not issue a 1099-R for any in-plan and in-service Mega Backdoor Roth rollovers. As long as the funds have stayed within the 401(k) plan, you are fine. However, if you decide to roll those contributions outside of the plan into a Roth IRA, then a 1099-R would be required. Please let us know if you decide to roll funds outside of the plan.
I am a sole proprietor and do not know my net income at the end of the year. As a result, I do not know the exact amount of my profit-sharing contribution or after-tax contribution. How do I complete the Form?
You are required to make the election before year-end. Because sole proprietors often do not have net income numbers by the end of the year, it is appropriate for you to include in the form maximum to detail your contribution without knowing the exact numbers.
Does Emparion do anything with this Form once it’s submitted?
We will include the form in your file and retain it to support your contribution or if the IRS requires evidence. The form will also form a basis for your contributions made after year-end.
Will I receive a copy of this Form?
Yes. Upon submission of the form, you will receive a copy emailed to you.
Do I fill out the form for me and my spouse?
You will complete one form and it will include both of you.
What account must the funds come from (business or personal)?
After-tax contributions are employee deferrals. This being the case, you can make the contribution from your personal funds. However, depending on your tax structure, you can make the contributions from your business and treat them as a distribution. Just make sure if they come from the business that you’re not taking a tax deduction for them.
Do I have to report any after-tax contribution on my W2?
No. Only pretax 401(k) deferrals and Roth 401(k) deferrals are reflected on your W-2. The after-tax contribution is not reflected on the W-2.
Does my after-tax contribution impact how much I can contribute to my defined benefit plan?
No. After-tax contributions do not impact your contributions to your defined benefit plan. But considering that 401(k) profit-sharing contributions are limited to 6% of your compensation, having to fund the defined benefit plan will typically minimize your tax-deductible 401(k) profit-sharing and increase your after-tax contribution.
Where in my plan document does it state that my plan allows for the Mega Backdoor Roth strategy?
For this strategy to be utilized in your 401(k) plan you’ll need to make sure the plan document supports the correct plan features.
The plan must allow Voluntary (after-tax) Contributions to be made. This is included in Section A, number 9 in your adoption agreement.
The plan document must also allow for In-Plan Roth Transfers. This is also called an In-Plan Roth Conversion, which allows participants to convert non-Roth assets to Roth assets within the same plan. This is included in Section G, number 14 of your adoption agreement.
Is the process you follow consistent with IRS requirements?
This is the process that we follow as a company. Unfortunately, the IRS has not dictated an exact process or timeline. The IRS is has said that you can do a Mega, but they haven’t given detailed instructions as to how to do it. As such, some steps are left to interpretation.
Our process follows commonly observed practices that are consistent with many administrators like us. In some situations, there is recent guidance like the Secure ACT and other IRS publications that offers additional assistance.
We believe the election form is a streamline approach to documenting your contributions and making them IRS compliant. Certainly, these are our recommendations and if you choose to do something different, that is up to you.
If you have information that conflicts with our process, please forward it over. We would be glad to take a look and forward it to our compliance team for review.
Can you explain the process for a sole proprietor who is doing the Mega?
First, you want to confirm that a Mega is allowed in your 401(k) plan document. Our plan documents allow the Mega, but many plans that were created at Schwab, Fidelity, Vanguard are just basis plan designs and do not allow the Mega.
Assuming your plan allows it, you have up to the annual deferral limits of $70,000 or $77,500 for people age 50+. This annual limit is composed of three components:
- Employee deferral
- Employer profit sharing
- After-tax/Roth contributions
Even though contributions are not required to be made during the current plan year, you must make an election by the end of your plan year (typically 12/31) for the deferral and the after-tax portion. You never need to make an election for an employer profit sharing contribution.
We understand that you typically don’t know your exact net income at the December 31st, so on our election form you can designate the “maximum” if you want to take advantage of the full annual limit after deducting a profit-sharing contribution.
Once the election is made, you have to make the contribution prior to filing your tax return with the latest date being October 15th.
Can you explain the process for an S-Corp or C-Corp that is doing the Mega?
First, you must confirm that a Mega is allowed in your 401(k) plan document. Even though the IRS allows Megas, it has to be allowed in your plan.
Our plans allow the Mega, but many plans that were set up at Fidelity, Schwab or Vanguard are just simple plan designs and do not allow Mega contributions.
Assuming your plan document allows it, you may contribute up to the annual deferral limits of $70,000 (or $77,500 if age 50+). This annual additions limit is composed of three components:
- Employee deferral
- Employer profit-sharing
- After-tax/Roth contributions
Both your employee deferral and after-tax contributions should be contributed by January 15th of the following year. Employee deferrals must be notated on your W2, but after-tax contributions are NOT notated on your W2. Your payroll provider should be familiar with this.
No matter when the after-tax contributions were made, you must make an election by the end of your plan year (12/31 in most cases) to designate the after-tax conversion to Roth. You are not required to make an election for employer profit-sharing contributions.
Because you are filing your W2 at the end of the year, you will know all of the three components above by 12/31. On the election form you can still designate the “maximum” or put in the exact numbers if you want to take advantage of the full annual limit after deducting your profit-sharing contribution.
Can I establish a Mega Backdoor Roth if I have employees?
Unfortunately, Mega Backdoor Roths typically will not work for group plans. All 401(k) plans (which includes the Mega) are subject to IRS compliance testing. This testing is designed to ensure that all participants will benefit fairly in the company 401(k) plan and that the plan itself is not only benefiting the owner.
Any after-tax contributions will be subject to the Actual Contribution Percentage (ACP) test. Almost any group plan with the Mega will fail the ACP compliance test because the owner is typically the only one making contributions to the Mega. Employees rarely want to make after-tax contributions.
In order to do the Mega, the company would need some of the non-owner employees to contribute to the Mega in order to pass ACP testing. This is understandably a challenge to do, which is why in practice we almost never have seen it work.
What is the Pro-Rata Rule?
The Pro-Rata rule applies when a Traditional IRA or 401(k) includes both after-tax and pre-tax funds. When you withdraw or convert funds from the IRA or 401(k), each dollar taken will consist of a percentage of tax-free and taxable money. This percentage reflects the ratio of these funds within the account.
The Pro-Rata Rule determines the taxable amount of conversions based on the ratio of non-deductible after-tax dollars in Traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs.
It is important to understand that the pro-rata rule considers all IRAs as a single account, known as the Aggregation Rule. Opening a new IRA and making a nondeductible contribution will not bypass this rule.
A common issue is that even if you contribute to an after-tax 401(k) through your employer, the employer’s matching contributions must be placed in a non-Roth account. As a result, if you attempt to convert your entire 401(k) account to a Roth account, you may have to pay taxes on the portion that comes from your employer’s matching contributions. The Secure Act 2.0 has changed this limitation, but it remains to be seen how many 401(k) plans will implement this change.
