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Home/Retirement & Benefits/401K CONTRIBUTION LIMIT · ROTH IRA RULE CHANGE

The 401(k) gap allows high earners to bypass Roth IRA income limits

CK

Cora Kingsley

401k contribution limit · Apr 14, 2026

High earners can funnel up to $47,500 annually into tax-free Roth accounts, bypassing the income limits that prevent direct Roth IRA contributions. This access to tax-free growth and the absence of minimum distributions is available to those whose 401(k) plans permit both after-tax contributions beyond the standard deferral limit and either in-plan Roth conversions or in-service distributions.

Related Brief3h ago
tax strategies

High Earners Can Move Up to $55,000 Annually Into Tax-Free Roth Accounts

A high earner can move up to roughly $55,000 or more into Roth-equivalent accounts in a single year. This is possible by combining the Mega Backdoor Roth and the standard backdoor Roth IRA. The standard backdoor Roth IRA allows for contributions of $7,500, or $8,600 for those age 50 and older, regardless of income level. The Mega Backdoor Roth operates within the gap between the $24,500 elective deferral limit for 401(k) plans and the $72,000 overall annual limit on total employee and employer contributions for 2026. This strategy requires an employer plan that allows after-tax contributions and either in-service withdrawals to a Roth IRA or in-plan Roth conversions. After-tax dollars are filled into that gap and then rolled into Roth accounts for tax-free growth. A participant who uses both strategies simultaneously can move the maximum amount allowed by the IRS limits for 2026.

The strategy relies on the gap between two IRS limits for 2026. The employee deferral limit is $24,500, while the total contribution ceiling under Section 415(c) is $72,000. The space between these two figures allows for after-tax contributions. A participant who maxes out their employee deferral and receives no employer match has $47,500 of remaining room under the 415(c) ceiling.

Related Brief17h ago
retirement planning

Older savers can now contribute more to 401(k)s as 2026 limits increase

Workers can now contribute up to $24,500 to their 401(k), 403(b), governmental 457(b) plans, and the federal government’s Thrift Savings Plan in 2026. This is a $1,000 increase over the previous year. People 50 and over who participate in these plans can contribute an additional $8,000. Workers aged 60 to 63 qualify for a "super catch-up" provision that allows for an extra $11,250. For high earners, a new rule requires those who made over $145,000 in FICA income last year to make their catch-up contributions using a Roth 401(k). These contributions must be made with after-tax dollars rather than pretax dollars. If an employer does not offer Roth options, a Roth IRA serves as an alternative.

Employer matches reduce this available space. A participant receiving a $10,000 match has approximately $37,500 of remaining after-tax room, as the match counts against the 415(c) ceiling. Once these after-tax contributions are made, they must be converted to Roth status to avoid taxable earnings.

Related Brief2d ago
retirement planning

Using IRA Funds to Pay Conversion Taxes Can Cost Over 30% of Every Dollar

Using funds from a converted IRA to pay the resulting tax bill can cost a person well over 30% of every dollar used to cover that cost. This occurs when assets are moved from a traditional IRA to a Roth IRA, and the conversion amount is added directly to the person's taxable income for the year. The tax bill is generated at the time of the conversion. If the person pulls money out of a tax-advantaged haven to pay those taxes, they incur the cost. The conversion can also push a person into a higher tax bracket, such as moving from the 22% bracket to the 32% bracket. Poorly timed conversions can increase Medicare premiums and trigger higher taxation of Social Security benefits.

Eligible high earners can funnel up to $47,500 annually into tax-free Roth accounts.

Related Brief1h ago
retirement planning

Social Security beneficiaries face a 23 percent benefit cut by 2033

Social Security beneficiaries will face a 23 percent benefit cut if Congress does not act to address the funding shortfall. Total scheduled benefits will drop to 77 percent after 2033. This shortfall occurs because the program's cost has exceeded its cost has exceeded its non-interest income since 2010, which has depleted the Social Security trust funds. According to the 2025 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, the Social Security Administration will be able to pay 100 percent of total scheduled benefits only until 2033.

401k contribution limitRoth IRA rule change

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