The Mega Backdoor Roth isn't for everyone, but when available, it's a physician's superpower. Whether you're a W2 employee, an independent contractor, or running your own solo 401k, we discuss how to add it to your financial strategy and explain the potential pitfalls.

In this episode, we talk through how to check your plan details and crunch the numbers to see whether it's right for you. After all, balance is key to financial wellness. If you've ever wondered how to get more into your Roth bucket or whether after-tax 401(k) contributions could benefit your long-term plan, this episode is for you.

Looking for help with Disability Insurance, Physician Banking, Student Loan Refinancing, Physician Mortgages, Contract Reviews, and more? Check out our "Best of the Best" sponsors page to find a list of the professionals Chad & Tyler team up with for their clients.

You will want to hear this episode if you are interested in...

• [04:37] Mega Backdoor Roth limit constraints.
• [09:04] The tax efficiency debate: after-tax vs. brokerage.
• [13:03] Mega Backdoor Roth strategies.
• [14:07] Qualifying for a Mega Backdoor Roth.
• [17:28] Maximizing income for retirement planning.

What is the Mega Backdoor Roth?

The Mega Backdoor Roth is an advanced retirement savings tactic that enables high-income earners to invest much more into Roth accounts than what standard Roth IRA or Roth 401(k) contribution limits allow. For 2025, the total 401(k) contribution cap is $70,000, which includes your $23,500 employee contribution, employer match, profit-sharing, and, where available, the after-tax contributions that make the Mega Backdoor Roth possible.

In practical terms, if your employer plan allows both after-tax contributions and in-service rollovers or conversions to a Roth, you could move up to $70,000 into your Roth 401(k) or IRA annually, subject to subtracting your standard contributions and employer match. This "mega" savings opportunity can significantly boost your tax-free retirement nest egg, if you're eligible.

Why Isn't Everyone Doing This?

The excitement about the Mega Backdoor Roth on online finance forums makes sense, but not everyone can access this perk. Most 401(k) plans (especially in private practice or academic settings) do not offer the required plan features. Out of every ten clients, maybe only two or three have plans that permit Mega Backdoor Roth contributions.

What's more, high employer contributions can limit your after-tax space. If your employer already maxes out your account with generous matching or profit-sharing, there may be little to no room left for after-tax contributions.

How Does It Work?

Here's the basic playbook:

• Check Your Plan Rules: Ask HR if your 401(k) permits after-tax contributions and if it allows in-service rollovers or conversions to a Roth.

• Calculate Your Limit: Subtract your employee plus employer contributions from the $70,000 limit. The difference can be contributed after-tax.

• Act Quickly on Conversions: Ideally, you want to roll over your after-tax contributions to a Roth as soon as possible. This ensures all growth also becomes tax-free, not just the original contributions.

• Watch Out for Pitfalls: If you overcontribute before employer matching goes in, you risk missing out on those contributions or breaching the annual cap, which can trigger headaches and require corrective distributions.

Solo 401(k)s and Mega Backdoor Roth

For independent physicians or those with significant 1099 income, a Solo 401(k) may create even more flexibility. Some people can combine cash-balance pension plans with Solo 401(k)s for both pre-tax and Mega Backdoor Roth contributions. However, not all off-the-shelf plans allow these advanced moves; customized plan setup may be required, and using the right provider can make a big difference.

Spouses who work in the practice might also be eligible, potentially doubling the family's Mega Backdoor Roth opportunity, a major win for highly compensated couples.

Is It Always the Right Move?

More Roth savings sounds great, but don't prioritize future tax-favored accounts over your present cash flow or liquid needs. If contributing the maximum would squeeze your lifestyle or short-term goals, scaling back is wise. Plus, for some, a taxable brokerage account, especially for low-dividend investments, might be more tax-efficient if after-tax-only options are the alternative.

Remember, you don't have to max out your after-tax contributions for the strategy to be worthwhile. Even smaller amounts add up and diversify your retirement tax picture.

The best of the best list is a paid sponsorship, but these are professionals/companies that Tyler and Chad collaborate with within their own practices or have been vetted to earn a spot on this list. By supporting our sponsors, it allows Chad & Tyler to dedicate more time to you and the Physician Cents community. If you ever have a question (or not a great experience, which we don't expect!) about a sponsor, please let us know. We call it the "best of the best" for a reason, and we will maintain that standard for our listeners & viewers.

Resources & People Mentioned

• carry.com

Connect With Physician Cents

• WealthKeel LLC
• Olson Consulting LLC
• Tyler Olson on Twitter
• Chad Chubb, CFP®, CSLP® on Twitter

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