After-tax 401(k)

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Flag of the United States.svg.png This article contains details specific to United States (US) investors. It does not apply to non-US investors.

An After-tax 401(k), also known as a Mega Backdoor Roth IRA, is a type of deferred 401(k) subaccount, with different rules from traditional and Roth 401(k) accounts. They are typically used in strategies to rollover money to Roth IRAs far in excess of normal contribution limits. The rules, and even the availability, for these plans may vary considerably from one company to another. Discussion below refers to generic IRS rules; consult your own company's documentation for specifics.


  • Subject to much higher contribution limits than traditional 401(k)s (up to $57,000 in 2020, $58,000 in 2021)
  • If funds are rolled into a Roth IRA, or a Roth account within the 401k using an in-plan Roth rollover soon after contribution, gains (and tax on them) will be minimal. Further growth in the Roth IRA is tax free (subject to the usual Roth IRA restrictions).
  • Some 401(k)s allow for in-service distributions, allowing employees to roll over funds during employment without a triggering event.[note 1]
  • Protection from creditors under ERISA.

Potential Disadvantages

  • Death, for monies waiting for rollover, the inheritor is left with a non-deductible IRA with very complicated paperwork.
  • Losses before rollover, "basis" could be lost if you don't leave a few pennies in the account. Check with your plan to see how it handles this situation.
  • Additional paperwork: You may receive two 1099-R's every year, one for the rollover and one for the gains. As many accountants aren't aware of the documentation requirements, this increases the chance for error.
  • Company fails nondiscrimination tests, resulting in a return of contributions.[1] See Highly compensated employee.

After-Tax 401(k) limits

Traditional and Roth accounts share an employee (under age 50) contribution limit up to $19,500 per person for 2020, $19,000 for 2019, or 100% of the employee's compensation, whichever is less. However, Section 415(c)(1)(A) limits total contributions to defined contribution plans to $57,000 in 2020 and $58,000 in 2021, or 100% of the employee's compensation, whichever is less.[2][3] The limit for an after-tax 401(k) is the lesser of the difference between the amount already contributed by the employer and employee, and the Section 415 limit, or 100% of employee compensation.[4]

To elaborate, consider an individual with an annual salary of $100,000. She maxes out her 2021 Traditional 401K contribution ($19,500) with a company match of 5%. How much can she contribute to the after-tax 401k?

Individual Contribution

(Traditional 401k + Roth 401k)

Company Match Max After-Tax-401k Contribution
19,500 100,000 * 0.05 = 5,000 58,000 - (19,500+5,000) = 33,500

This same individual has both a Traditional and a Roth 401k. She then makes equal contributions to each 401k. Her 2020 individual contribution cap of $19,500 has not changed. Assuming the employer match is same for both the Traditional and Roth 401ks, the calculation remains the same as outlined above.

Earnings on after-tax contributions

Earnings associated with after-tax contributions are pretax amounts. Distribution of these earnings is therefore taxable as ordinary income. To avoid taxable income, the earnings may be rolled over into a traditional IRA.[5]

The plan provider should distribute the contributions and earnings separately (one check for earnings, one check for contributions). Each distribution can then be rolled over into the appropriate account.

Some plan providers may not offer this choice (one check for both earnings and contributions). If this is the case, request a single check payable to yourself. The plan must withhold 20% of the earnings (the pre tax portion of the check), so your net check is a little less than the distribution.[6]

Then, do a 60 day rollover of the gross pretax amount (the earnings) to your traditional IRA. Do this first.[6]

Once complete, then roll the after tax amount (making up the withheld amount from your other funds) into your Roth IRA.[6]

There is no tax on the distribution. Report it as a rollover on Form 1040 lines 16a and 16b just like you would a direct rollover. Remember to claim credit for the withholding that will show on the 1099-R.[6]

Also consider that the earnings may be so small that it makes more sense to do a direct rollover of the entire amount to your Roth IRA and pay taxes on the earnings.[6]


  1. An event that a participant in a qualified plan must experience in order to be eligible to receive a distribution from a qualified plan. For most 401(k) plans, the triggering events are:
    • Attaining retirement age
    • Termination of employment (you are no longer employed by the company that offers the 401(k) plan in question)
    • Death - in this case, your beneficiaries are allowed to distribute your assets
    • Disability - the document that governs the 401(k) plan generally provides a definition of "disability"
    • Your employer terminates the 401(k) plan and does not replace it with another qualified plan
    See: Triggering Event, Can I roll my 401(k) and/or IRA funds into a more liquid investment fund without penalty?, on Investopedia


  1. "What's Old Is New Again: "Mega Back Door" Roth IRA Contributions Spark New Interest in Old School After-Tax Contributions". Employee Fiduciary. Retrieved 15 August 2017.
  2. "Income ranges for determining IRA eligibility change for 2021". IRS. Retrieved March 14, 2021.
  3. "Notice 2020-79" (PDF). IRS. Retrieved 31 October 2020.
  4. [USC10] 26 USC 415(c): Limitation for defined contribution plans
  5. "Rollovers of After-Tax Contributions in Retirement Plans". Internal Revenue Service. Internal Revenue Service. 27 Aug 2017. Retrieved December 27, 2017.
  6. 6.0 6.1 6.2 6.3 6.4 Bogleheads® forum post: Re: Backdoor Roth Question, Alan S.

External links