The $7,500 Roth Strategy Congress Couldn't Ban: How High Earners Are Sheltering Income Tax-Free in 2026

"The Mega Backdoor Roth works differently with a much larger ceiling. In 2026, the IRS sets a $24,500 elective deferral limit for 401(k) plans and a $72,000 overall annual limit on total employee and employer contributions to defined contribution plans. The gap between those two numbers is where the strategy lives."

"If your employer plan allows after-tax contributions and either in-service withdrawals to a Roth IRA or in-plan Roth conversions, you can fill that gap with after-tax dollars and then roll them into Roth. In the right setup, that can create almost an additional $50,000 in Roth savings in a single year."

In November 2021, the House voted to eliminate the Mega Backdoor Roth and backdoor Roth IRA for high earners, effective January 1, 2022. The Build Back Better Act included this provision, but it failed in the Senate due to Senator Joe Manchin's opposition. High earners have since utilized these strategies aggressively. The backdoor Roth allows contributions to a traditional IRA and conversion to Roth without additional tax. The Mega Backdoor Roth enables larger contributions through after-tax dollars, potentially adding significant savings in a single year. The contribution limits for Roth IRAs also increased for 2026.

Read at 24/7 Wall St.