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After-Tax Contributions and the Mega Backdoor Roth: A 2026 Guide for CPAs Advising High-Earning Clients

After-Tax (Non-Roth) Contributions.

After-tax contributions are a distinct contribution bucket, separate from both pre-tax elective deferrals and designated Roth deferrals. Their ceiling is the IRC Section 415(c) annual additions limit, which caps the total of all employer contributions, employee contributions, and forfeitures allocated to a participant’s account (excluding earnings). For 2026, the Section 415(c) limit is the lesser of 100% of compensation, or $72,000, with catch-up contributions permitted on top of that amount.

Because after-tax contributions are neither pre-tax nor Roth elective deferrals, they do not count against the Section 402(g) elective deferral limit ($24,500 for 2026) but do count toward the Section 415(c) limit. In practical terms, a high-earning participant’s after-tax capacity usually equals the $72,000 limit minus all other annual additions, including their pre-tax and Roth elective deferrals and any employer match, nonelective contributions, and allocated forfeitures, but excluding catch-up contributions.

Nondiscrimination testing is a key consideration. After-tax employee contributions are tested under the Actual Contribution Percentage (ACP) test of IRC Section 401(m), the same test that applies to employer matching contributions. Employee after-tax contributions remain subject to ACP testing even if the plan’s matching contributions qualify for an ACP safe harbor. Because after-tax contributions skew heavily toward highly compensated employees, plans that permit them frequently risk ACP failures. It is important to keep a plan’s wage demographics in mind when assessing these types of contributions.

The Mega Backdoor Roth Strategy.

The Mega Backdoor Roth is a two-step strategy: (1) the participant makes after-tax contributions, and (2) those amounts are converted to Roth through an in-plan Roth rollover. The after-tax principal converts to Roth tax-free (since it was already taxed); only any earnings attributable to the after-tax amounts are taxable as ordinary income in the year of conversion. Prompt conversion, on the same day or within a few days of the contribution, minimizes taxable earnings. Because of this, many plans offer automatic or frequent in-plan Roth rollover features.

Two provisions must be present in a plan before participants can take advantage of the Mega Backdoor Roth strategy: (1) the plan allows voluntary after-tax (non-Roth) contributions; and (2) the plan allows in-plan Roth rollovers of after-tax amounts while the participant is still employed. It is important to review the plan document before attempting to utilize this strategy.

The Mega Backdoor Roth has no income limit, unlike direct Roth IRA contributions (which phase out based on MAGI).

Key Planning Takeaways.

• Confirm the plan permits both Mega Backdoor Roth provisions before advising a client to pursue the strategy.
• Monitor Section 415(c) limits: $72,000 minus elective deferrals, minus employer contributions and forfeitures; track cumulative additions during the year, especially for owners and HCEs.
• Assess ACP testing exposure before broadly promoting after-tax features.
• Encourage prompt or automatic in-plan Roth rollovers to minimize taxable earnings on after-tax amounts.