Supercharge Your Roth Savings With After-Tax Contributions

Americans hold more than $51.2 trillion in savings within retirement accounts, with IRAs representing roughly 39%, or $19.9 trillion of that total.¹ Within the IRA market, Roth assets have grown significantly, increasing from approximately 5% of total IRA assets in 2005 to approximately 12% by year-end 2024.² Despite this substantial growth, Roth assets still represent a relatively small share of overall IRA savings. Given persistent federal budget deficits and uncertainty surrounding major programs like Social Security and Medicare, future tax policy remains uncertain. Because Roth accounts can provide tax-free qualified distributions and may help manage the potential impact of higher tax rates in the future, investors may want to consider whether increasing Roth savings could be an effective strategy depending on their individual circumstances.

A Roth Gap for Today’s Pre-Retirees

For many of today’s pre-retirees, a significant share of their retirement savings is held in traditional (pre-tax) accounts, leaving them with relatively little exposure to Roth assets as they approach retirement. This is hardly surprising given that Roth accounts did not exist when many of these workers began their careers. Roth contributions within 401(k) plans were not introduced until 2006 at the earliest, and it took years before they were widely adopted by employer plans. By then, many in this cohort may have been earning significantly more and moved into higher tax brackets, making the upfront tax deduction from pre-tax contributions increasingly attractive. This heavy concentration within pre-tax retirement savings may result in a substantial future tax liability once those assets are distributed. While Roth conversions can help diversify retirement savings from a tax perspective, they may be less attractive during peak earning years when the additional income could be subject to higher tax rates.

Retirement Plan Contribution Limits for 2026

Maximum elective deferral to a defined contribution plan (401(k), 403(b), etc.) = $24,500

Catch-up contributions for those age 50 or older = $8,000

Additional catch-up contribution for those ages 60-63 = $3,250 ($8,000 + $3,250 = $11,250)

Overall limit on contributions into a defined contribution plan = $72,000*

Source: Internal Revenue Service (IRS), Notice 2025-67, “2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living.”
* Does not include catch-up contributions. Note that beginning in 2026, certain plan participants with more than $150,000 in prior-year FICA wages from the employer sponsoring the plan must make catch-up contributions on a Roth basis. 

Bridging the Roth Gap

For some participants, employer-sponsored retirement plans may offer a way to address this Roth gap through voluntary after-tax contributions. This opportunity may be particularly relevant for pre-retirees in their peak earning years when higher incomes may provide greater capacity to increase plan contributions, especially for those who are no longer funding college education for children. The key benefit of making after-tax contributions within the plan is the ability to subsequently convert those after-tax contributions to a Roth account, generally without generating additional taxable income on the contributed amount. This may allow a pre-retiree to build up significant savings in a Roth account. This approach is often referred to as a “Mega Backdoor Roth strategy.”

Consider this example:³

• Jenny, age 58, has participated in her employer’s 401(k) plan for many years, making traditional pre-tax contributions and receiving employer matching contributions, also made on a pre-tax basis. While she is pleased with the substantial savings she has accumulated, she is concerned about the potential impact of higher taxes when she begins taking distributions in retirement. 
• This year, she contributes the maximum amount of $24,500 (not including the catch-up contribution) into the plan through salary deferral. Because she is in a relatively high tax bracket, she is making pre-tax contributions.
• She receives a total employer contribution (match + profit sharing) of $15,500.
• The total of her own salary deferrals plus employer contributions totals $40,000.
• If her plan allows, Jenny contributes an additional $32,000 in after-tax dollars into the plan (overall annual plan contribution limit of $72,000 minus $40,000 in salary deferral and employer contributions).
• Pursuant to plan rules, Jenny could transfer those after-tax contributions to either a Roth account within the plan, or a Roth IRA outside of the plan (participants must refer to the plan document for more details on options available to them).

In this example, Jenny has effectively made a higher contribution to a Roth account ($32,000) than is allowed within an IRA ($7,500*). If she continues for several years before retirement, Jenny can build a substantial pool of Roth assets that can provide tax-free qualified distributions  in retirement.

* For 2026, the Roth IRA contribution limit is $7,500 which does not include the additional catch-up contribution limit ($1,100) for those age 50 or older. For 2026, eligibility to contribute directly to a Roth IRA phases out at modified adjusted gross income of $153,000-$168,000 for single and head-of-household filers and $242,000-$252,000 for married couples filing jointly.

Key Considerations for a Mega Backdoor Roth Strategy

• Many employer plans do not allow after-tax contributions. Check the plan’s Summary Plan Description to determine if they are available and if any specific guidelines apply.
• Investment account earnings on after-tax contributions generally are taxable when converted to a Roth. Accordingly, plan participants may want to roll over after-tax contributions to a Roth account as soon as administratively feasible to minimize the potential for taxable earnings to accumulate. Note that plan provisions determining how and when after-tax contributions can be transferred to a Roth account may vary widely.
• The decision to make after-tax contributions should be considered in the context of broader financial priorities, including cash flow needs, emergency savings, debt repayment, and other competing financial goals.

Seek Professional Advice

Since individual circumstances will vary widely, it’s important to work with an advisor experienced in managing income and taxes in retirement, who is also aware of your personal financial situation and objectives. For those who require modest income in retirement and expect to be in a lower tax bracket, the potential benefits of holding funds in a Roth account may be reduced. But for many, having a mix of traditional, pre-tax retirement funds and Roth savings can provide more flexibility to manage taxes in retirement.