Mega-Backdoor Roth in a Solo 401(k): Step-by-Step Playbook

Figures reflect rules in effect as of October 2026.

A mega-backdoor Roth uses after-tax contributions to a solo 401(k), made above your regular deferral and then converted to Roth. For 2026, the room is whatever is left of the $72,000 limit after your deferral and the employer contribution.¹ It works only if your plan document allows after-tax contributions and a way to convert them.

If you run a one-person business and already make the full deferral and employer contribution, the annual limit may still have room. After-tax money can fill it, and once converted, its future growth can be tax-free.

The steps below assume a solo 401(k) covering you alone, or you and your spouse. Employees can do the same in a workplace plan that allows it, as I describe in what to do after maxing out a 401(k).

1. Does my plan allow it?

Two optional features must be in the plan document: after-tax (non-Roth) employee contributions, and a way to move them to Roth. The plan decides which amounts can be converted in the plan and how often.²˒³

Questions to put to your plan provider:

1. Does the plan accept after-tax employee contributions?
2. Does it allow in-plan Roth rollovers of after-tax money, and how often?
3. If not, can after-tax money be paid out while I am still working, so I can roll it to a Roth IRA?
4. If a feature is missing, can the plan be amended, or would I need a different document?

These questions are a starting point, not sufficient on their own; the plan document and your provider’s procedures decide what is allowed.

In a plan with employees, after-tax contributions must pass a nondiscrimination test that can limit higher earners.² A plan that covers only you, or you and your spouse, has no employees to test against.⁴

2. Make your regular deferral

For 2026, you can defer $24,500 as an employee, pre-tax or Roth. At 50 or older you can add $8,000, or $11,250 in the years you turn 60 through 63.⁵

Catch-ups don’t count toward the $72,000 limit.⁶ They raise what you can save in total, but they create no after-tax room.

If you pay yourself through an S corporation and your W-2 wages were more than $150,000 in 2025, your 2026 catch-ups must be Roth.¹˒⁷ A sole proprietor has no wages from the business and isn’t affected.⁸

3. Decide on the employer contribution

As employer, the business can contribute up to 25% of your W-2 salary from an S corporation, or 20% of net self-employment earnings for a sole proprietor, after the deduction for half of self-employment tax.²˒⁴ This contribution is deductible now.

Each dollar of employer contribution uses a dollar of the $72,000 limit that after-tax money could fill. Dividing the room between the two is a choice between a deduction now and Roth money later, the same trade I cover in Roth vs. traditional.

4. Work out your after-tax room

Your deferral, employer contribution and after-tax contributions together can’t exceed $72,000 for 2026, or 100% of your compensation if that is less.¹˒⁹

A hypothetical example: an S corporation owner under 50, paid a $150,000 W-2 salary in 2026, whose plan allows after-tax contributions and makes a 25% employer contribution.

A sole proprietor works it out the same way, using the employer contribution from the Publication 560 worksheet. My comparison of the solo 401(k) and the SEP IRA walks through that calculation.

5. Make the after-tax contributions

Follow your provider’s process, and keep after-tax money separate from your deferral. For an S corporation owner, that usually means a separate payroll item: $10,000 over 24 pay periods is about $417 a paycheck. Check each statement that the after-tax account holds what you expect.

6. Convert to Roth promptly

There are two routes. An in-plan Roth rollover moves the money to the plan’s Roth account, if the plan offers it.³ Or, if the plan pays out after-tax money while you work, you can roll the contributions to a Roth IRA and any earnings to a traditional IRA.¹⁰

Your after-tax contributions aren’t taxed again when converted. The earnings are: the taxable amount is the value converted less your after-tax basis, included in income for that year, and nothing is withheld on a direct in-plan rollover.³ Converting soon after each contribution keeps the earnings, and the tax, small.

An in-plan Roth rollover isn’t subject to the 10% early-distribution tax, but taking the converted money out within five years can trigger it. A conversion can’t be undone.³

7. Keep the paperwork straight

• Form 1099-R. A direct in-plan Roth rollover is reported on Form 1099-R with code G.¹¹ The taxable earnings go on your return for that year.
• Estimated tax. Because nothing is withheld, a large taxable amount may call for higher estimated payments.³
• Form 5500-EZ. Once the plan’s assets, combined with any other one-participant plans you keep, exceed $250,000 at year-end, it files Form 5500-EZ, due July 31 for a calendar-year plan. Form 5558 extends that once, by up to 2½ months, and a late filing can cost $250 a day, up to $150,000 a plan year.¹²
• Basis. Keep a running record of your after-tax contributions and each conversion.

What about California?

California generally conforms to the retirement provisions of the SECURE 2.0 Act.¹³ After-tax contributions get no deduction in either system, and the taxable part of a conversion is ordinary income on your California return too.¹⁴

California’s top rate is 13.3%: a 12.3% bracket rate plus a 1% tax on taxable income over $1 million.¹⁵˒¹⁶ Prompt conversion matters more at those rates, because little in earnings means little for either the IRS or the state to tax.

The structure of an S corporation salary is covered in my post on S corporations and reasonable compensation, and this strategy is one piece of how I approach retirement planning.

The Bottom Line

A mega-backdoor Roth fills the space between your regular contributions and the $72,000 limit with after-tax money, then converts it to Roth. It depends on the plan document, so start there. Catch-ups add to your savings but not to your after-tax room. Convert promptly, keep a record of your basis, and keep the filings current.

If you would like to check whether your plan allows this and how much room you have, book a complimentary 15-minute call.