Circle It in Red · Accounts & the Roth machine
The Third Door: the 401(k) limit most people never find
A note on who Max is. Max is a cartoon owl. He is not a financial advisor, insurance agent, or tax professional, and nothing here is personalized advice. When a question turns personal, he does not answer it — he teaches the general version and points you to a licensed conversation, which is automated and says so before it says anything else.
There is a man in Coral Springs who has maxed his 401(k) every year since 1998 and thinks he is finished. He is not. He has been stopping at the first door in a hallway with three.
The mechanism
Your 401(k) has two limits, not one. The first is the one everybody knows — the elective deferral limit, the money you choose to hold out of your paycheck. The second is the one almost nobody talks about: the annual additions limit under IRC §415(c), which covers everything that lands in your account in a year. Your deferrals. Your employer's match. And a third category most people have never used: after-tax dollars that are neither deferral nor match.
Subtract your deferrals and your match from that total, and whatever is left is space you are allowed to fill with after-tax dollars. Then — and this is the part that makes it worth doing — you move those after-tax dollars into Roth. Either the plan converts them in place (an in-plan Roth conversion) or it lets you take them out while still employed (an in-service distribution) and roll them to a Roth IRA.
That is the whole thing. It is called the mega backdoor Roth. It is a mechanism, not a miracle: no special election, no offshore anything, no gray area. Three plan features working in sequence.
Who it is for, and who it is not
Fits
- You already max the regular deferral, and the match.
- You have real cash left over after that.
- Your plan permits after-tax contributions and either in-plan conversion or in-service withdrawal.
Does not fit
- You are not maxing the deferral yet — do that first, then the match, then here.
- The after-tax money would come out of your emergency reserve.
- Your plan permits neither feature — then this door does not exist for you, and no amount of wanting it will open it.
The only two questions to ask at work
- Does the plan allow after-tax contributions — not Roth deferrals, after-tax?
- Does it allow in-plan Roth conversions or in-service distributions?
Two yeses and the door is there. One no and it is not. Small plans often fail a nondiscrimination test called the ACP test when only the high earners use this, which is why some plans quietly do not offer it.
Let me circle the part that bites.
The money is only clean the day it lands.
After-tax dollars go in with basis — you already paid tax on them, so converting them costs nothing. But the moment they sit there, they start earning. And earnings on after-tax money are pretax. Convert six months later and every dollar of growth in that account comes across as ordinary income in the year you convert.
People set up the contribution, feel clever, and never set up the conversion. A year goes by. The gain that was supposed to be a bonus turns into a tax bill they did not plan for, at their highest marginal rate, in their highest-earning year.
The fix is unglamorous: automatic conversion, every payroll cycle. Many plans offer exactly that as a checkbox. If yours does, check it and never think about it again. If it does not, you are doing this by hand — put it on the calendar the same week you set up the contribution, or do not start.
Same door. Wildly different outcome, decided by a checkbox.
Figures on this page are for tax year 2026 and were last verified 2026-07-25. Tax and benefit numbers change every year — check the current-year figure before acting on any of them. The 2026 Medicare IRMAA income tiers were not yet confirmed when this was written; where they matter, they are named but not stated as fact.
If your question is “should I do this?”
I cannot answer that, and neither can anyone else who has not seen your return. I do not know your bracket, and anybody on the internet who says they do is selling something. That one needs a licensed conversation. If you want it, the Desk hands you to its licensed agency — automated too, and it says so before it says anything else. You ask, or it does not happen.
Traps and topics named in this piece
Max out. Roth well.
Desk’s open.
— Max