The costly assumption about a mega backdoor Roth for doctors

What does a mega backdoor Roth for doctors move, and under which limits?

A mega backdoor Roth moves after-tax money from an employer plan into a Roth account. It adds a third source of contributions beside pre-tax and Roth salary deferrals, but it does not replace either one. For 2026, the IRS limit for total defined contributions is $72,000, counting employee deferrals, employer contributions and after-tax contributions.

The employee deferral limit is $24,500. The catch-up is $8,000 at age 50 or older, or $11,250 at ages 60 to 63, and those catch-ups do not count toward the $72,000 cap. After-tax money reaches Roth through an in-plan conversion or an in-service rollover to a Roth IRA. The contribution itself is not taxed again; earnings converted are taxable income.

Converting changes how the money is taxed, not how risky it is. The same funds sit in the Roth after the switch, and a bad market can leave the balance below what you contributed.

Find your after-tax room under the $72,000 ceiling

Subtract your employee deferral and employer money from $72,000 to estimate after-tax room for 2026. With no employer contribution, $72,000 − $24,500 leaves $47,500. With $14,000 from the employer, room falls to $33,500; if employer contributions reach $47,500, no room remains.

Employer money decides everything here: at $47,500 of employer contributions, the after-tax space drops to zero. Plans sponsored by the same employer count together toward the cap. A hospital may fund a separate 401(a) plan for physicians, so take the employer total from your year-end statement, not the offer letter. Annex Wealth Management checks both plans before estimating room.

Does the Roth IRA income limit block a physician from this?

No. The 2026 Roth IRA income phase-out limits direct Roth IRA contributions, not after-tax contributions to an employer plan or conversions into Roth. The IRS phase-out is $153,000–$168,000 for single filers and $242,000–$252,000 for married filing jointly; high physician income can block a direct contribution without blocking this plan strategy.

Request these plan features from HR before money goes in

Ask for the summary plan description and the section on after-tax contributions. Confirm that after-tax contributions have their own payroll percentage, separate from Roth deferrals. Then email HR: does the plan allow in-plan Roth conversion or an in-service distribution of after-tax money, how often do conversions run, and does the employer make a year-end match true-up?

Automatic conversion each paycheck is best because it leaves little time for earnings to accumulate. Ask whether highly compensated employees received refunds of after-tax contributions after the ACP test last year. A yes, a small percentage cap, annual-only conversions or an unsure answer deserves follow-up. Annex Wealth Management would wait for written answers before changing the payroll election.

• Request the summary plan description and after-tax section
• Confirm after-tax payroll has its own percentage
• Email HR about conversion timing and match true-up
• Ask whether ACP refunds went to highly paid staff
• Keep written answers with plan paperwork
• Change payroll only after every answer arrives

Curtis fills $33,500 of room, and his son is the one it affects

Curtis, a hypothetical 57-year-old divorced orthopedic surgeon, works for a hospital system, pays alimony and has one adult son. He defers $24,500 and receives an $8,000 Roth catch-up; his hospital adds $14,000. The catch-up sits outside the $72,000 cap, so $72,000 − $24,500 − $14,000 = $33,500 remains for after-tax contributions, about $2,800 each month.

Curtis spends $14,000 each month, including alimony, and has roughly $3,000 of take-home pay left after that spending. The deduction fits, but barely. If alimony rises or another expense takes that surplus, he should reduce the after-tax percentage first. Annex Wealth Management starts with that monthly margin, not with the attractive account limit.

Ages 57 through 61 give him five years: 5 × $33,500 = $167,500 converted to Roth before growth, ahead of going part-time at 62. A Roth 401(k) has no lifetime required minimum distributions. His son, as a non-spouse beneficiary, generally has ten years to empty an inherited Roth, with distributions free of income tax once the Roth five-year clock is met. But the plan form still names Curtis's ex-wife; employer plans generally pay the named beneficiary, regardless of what a divorce decree says. The converted money is invested and can lose value, so $167,500 is not a floor.

The account row that changes the next move is after-tax contributions: convert them each paycheck, then check the beneficiary form before assuming Curtis's son receives the Roth money.

Where after-tax contributions go wrong, and what each error costs

Taking generic advice to “contribute after-tax now, convert later” literally can turn growth into a tax bill. If $33,500 stays unconverted for five years and builds $40,000 of earnings, those earnings are taxable when converted; at an illustrative 30% rate, that is about $12,000. Automatic conversion each paycheck keeps the gap between contribution and conversion close to zero.

A failed ACP test can send after-tax contributions back the following spring, with associated earnings taxable, while that year's chance to make the contributions is gone. If money leaves the plan, the after-tax basis should go to a Roth IRA and any pre-tax earnings to a traditional IRA. That pre-tax IRA balance can trigger the pro-rata rule on a separate backdoor Roth IRA.

Did SECURE 2.0 change plans you set up years ago?

Yes. Roth accounts inside employer plans no longer have lifetime required minimum distributions, so moving a Roth 401(k) to a Roth IRA solely to avoid those distributions is no longer necessary. Separately, the SECURE Act's ten-year rule ended lifetime stretching for most non-spouse heirs. If your estate plan assumes your son can spread inherited money over his lifetime, review that assumption and the beneficiary form.

How does being married, single or retiring early change the math?

Each working spouse has a separate $72,000 limit in their own plan, whether single or married; the Roth IRA income phase-out does not govern plan conversions. If a spouse's plan lacks an after-tax option, only the plan that has the feature can be used.

Someone short on cash should build an emergency fund and balance the monthly spending plan first; a doctor with $1 million or more mostly in pre-tax accounts may value an additional Roth source for income draws.

Before age 59½, every conversion that lands in a Roth IRA starts a separate five-year count for the 10% early-distribution penalty on converted amounts. Working until age 65 gives more time for contributions and growth, but that alone does not make the strategy worthwhile. It is a poor fit if the deduction pushes monthly spending into the red or crowds out emergency savings. If you'll need converted money within about five years, check the penalty rules before moving it.

Run this account check before changing payroll:

• After-tax line on the last pay stub
• Employer total on the year-end statement
• Plan conversion confirmation
• Beneficiary form dated after any divorce
• Last year's 1099-R for conversions

The plan pages Annex Wealth Management reads before your payroll changes

Annex Wealth Management would read the summary plan description's after-tax and conversion rules, then check the year-end statement for the employer total. The review would also test whether the extra deduction leaves a surplus in your monthly spending plan and whether the beneficiary form names the right person.