A simpler way to offer a mega backdoor Roth

What comes after maxing out a 401(k)? For high-earning clients who still have more to put toward retirement, that question can open up a bigger conversation about planning.

A mega backdoor Roth could be a good option, since it allows eligible clients to put additional after-tax dollars into their 401(k) and convert those dollars to Roth. In 2026, total contributions to a 401(k) can reach up to $72,000, with qualified Roth distributions generally tax-free once the five-year requirement and age 59 ½ requirements are met. The strategy itself is fairly straightforward, but executing it has historically been challenging.

Mega backdoor Roth is one of our most requested additions, and it’s now available for solo 401(k)s on Betterment—with optionality for 401(k) plan sponsors coming in 2027. It gives you another way to help eligible clients make the most of their retirement savings, without adding more manual work to your plate.

Here’s how the strategy works, who may benefit, and how Betterment is making it easier to offer.

A mega backdoor Roth lets a client save beyond the standard 401(k) employee deferral limits, with the potential for those additional savings to grow tax-free once converted to Roth.

Think of the contribution strategy as a waterfall:

1. Contribute after-tax dollars. Alongside traditional and/or Roth 401(k) contributions, eligible clients can make additional after-tax contributions, up to the applicable IRS limit.
2. Convert to Roth. Those after-tax dollars are converted to Roth, allowing future earnings to grow tax-free.
3. Withdraw tax-free in retirement. Roth contributions and earnings can be withdrawn tax-free when the requirements for a qualified distribution are met.

For eligible clients who have already maxed out their standard contributions, a mega backdoor Roth can create additional room for tax-advantaged retirement savings.

Mega backdoor Roth is not something every client needs, but for high-income clients, it can open up another avenue for tax-advantaged retirement savings. It may be particularly relevant if you work with:

• High-income earners who have already hit their standard 401(k) limits and are looking for the next lever to pull.
• Self-employed clients and solo 401(k) holders, who may have remaining contribution room.
• 401(k) plan sponsors looking to offer participants more flexibility in how they save for retirement.
• Executives and founders who have had this benefit before, at a previous employer or retirement plan, and now expect their advisor to help them evaluate whether it makes sense for them.

The conversation often starts simply enough: “I’ve maxed out my 401(k). Where else can I save?” Being able to offer a mega backdoor Roth gives you another potential answer.

Mega backdoor Roth has been technically possible for years. What has made it hard isn’t the strategy but the multi-step process, which can involve manual work, like phone calls, paper forms, and plenty of back and forth. Conversions may need to be initiated each time, while tracking different contribution types against IRS limits can add another task to your list.

Depending on the plan, setting up after-tax contributions and converting those dollars to a Roth account can also require additional coordination with a third-party administrator (TPA) to make sure each conversion is properly reported.

And automatic conversions are still relatively uncommon: In 2024, just 10% of Vanguard plans offered automatic Roth in-plan conversions, which automatically convert after-tax contributions to Roth when they’re made.

Starting in 2027, Betterment brings those pieces together in one automated workflow to take more of the admin off your plate.

Betterment’s mega backdoor Roth experience is designed to work like the rest of our platform: digital, and easy to manage. That includes:

• Digital after-tax contributions. Eligible participants can set up after-tax contributions digitally, with built-in tools to help them understand what they’re committing to.
  
  
• Guided Roth conversions. Starting in 2027: After-tax contributions are converted to Roth in a few clicks.
  
  
• Clear progress tracking. Personalized IRS-limit tracking helps clients track progress toward annual contribution limits.
• Greater visibility. You and your clients get a clearer view of contribution activity and progress.
  
  
• Tax reporting handled by Betterment. We handle the associated tax reporting, helping reduce the administrative work behind the strategy.

The result is a streamlined planning strategy with a much simpler workflow for you and your clients.

Not every client needs a mega backdoor Roth. But if you work with high earners, founders, executives, or self-employed clients, it may be worth looking across your book for clients who have more capacity to save after maxing out their standard 401(k) contributions.

A few questions can help you identify where the opportunity may be:

• Which of your self-employed clients have a solo 401(k), or could benefit from opening one?
• How many of your clients are already maxing out their standard contributions but still have more they want to put toward retirement?
• How much time are you spending helping clients track contribution limits and manage conversions manually?

Mega backdoor Roth may be a sophisticated planning strategy, but offering it shouldn’t require a complicated process. With Betterment, you can spend less time managing the mechanics and more time helping clients decide what to do with the additional room they have to save.