Today’s Micro-Business Tactic

Advanced Roth IRA Strategies for Physicians: Mega Backdoor Roth & Roth 401(k)

If you’re already doing the standard Backdoor Roth IRA, great—you’re capturing $7,000 per year ($8,000 if 50+ in 2025). But as a physician-entrepreneur, you can do far more. With a Mega Backdoor Roth layered onto a Roth 401(k), you can potentially channel up to $70,000 into Roth in 2025 (plus catch-ups on top)—creating a powerful tax-free growth engine inside your micro-business retirement plan.

I’ll show you what these strategies are, how they stack, and the exact steps to implement them, whether you run a Solo 401(k) through your PC/PLLC or participate in a group 401(k).

Why Roth belongs at the center of a physician’s plan

• Tax-free growth & withdrawals. Pay tax on the seed, not the harvest—hedging against the possibility of higher future tax rates.

• No lifetime RMDs on Roth IRAs or Roth 401(k)s for the original owner. (Roth 401(k) RMDs were eliminated starting with 2024 distributions; rollovers to Roth IRAs remain RMD-free.) IRS

• Asset protection & legacy planning. Many states protect retirement assets from creditors, and Roth dollars can be highly efficient for heirs.

• Owner control. Roth funding pairs well with S-corp levers (reasonable W-2 wages, employer profit share, distributions). For tuning W-2 and distributions, see Managing Distributions in Your Micro-Corporation (PC/PLLC) Taxed as an S-Corp and Determining Your Salary as a Self-Employed Doctor on The Independent Physician.

For sequencing all your accounts, skim The Waterfall of Tax-Efficient Investing for Doctors. SimpliMD

Mega Backdoor Roth, in plain English

The Mega Backdoor Roth lets you make after-tax (not Roth, not pre-tax) contributions inside your 401(k) up to the overall plan limit, then convert those after-tax dollars to Roth—either in-plan (to a designated Roth account) or via in-service rollover to a Roth IRA, subject to plan rules. Two must-haves:

1. Your plan allows after-tax (non-Roth) employee contributions; and

2. Your plan allows in-plan Roth conversions and/or in-service rollovers.

IRS guidance (Notice 2014-54) allows you to isolate after-tax basis so those dollars can go Roth cleanly. IRS+1

2025 limits (what’s new)

• 401(k) employee deferral (402(g)): $23,500 (was $23,000 in 2024). IRS

• Overall defined-contribution limit (415(c)): $70,000 (was $69,000 in 2024). Catch-ups are on top. IRS

• Age-50+ catch-up (standard): $7,500 (unchanged). IRS

• Age 60–63 “super” catch-up (SECURE 2.0): $11,250 if your plan offers it. (For high earners, catch-ups generally must be Roth starting 2026.) IRSKiplinger

• IRA/Roth IRA contribution limit (outside the plan): $7,000; $8,000 if 50+ (unchanged for 2025). IRS

Bottom line: With the right plan features, you can fill to $70,000 under 415(c) plus catch-ups: $77,500 if 50+ (standard catch-up), and up to $81,250 if you’re 60–63 and your plan enables the special catch-up. IRS+1

How the pieces stack inside a 401(k) (2025)

• Employee deferrals: $23,500 (or $31,000 if 50+ with $7,500 catch-up; up to $34,750 if 60–63 with $11,250 catch-up). Can be Traditional or Roth 401(k). Catch-ups sit on top of the overall cap. IRS+1

• Employer contributions: Generally up to 25% of W-2 (S-corp) or about 20% of net SE income (sole prop)—and they count toward $70,000.

• After-tax contributions: Whatever space is left under $70,000 after employee + employer contributions. Convert promptly (in-plan or to a Roth IRA) so future growth accrues tax-free. IRS

Case study (2025): dialing the knobs for maximum Roth

Dr. Patel, 45, runs a PC taxed as an S-corp with $400,000 net profit. She sets W-2 = $100,000 (reasonable comp for her role), then:

1. Employee Roth 401(k) deferral: $23,500 → Roth bucket (counts toward $70k).

2. Employer profit share: 25% × $100,000 = $25,000 (pre-tax; still counts toward $70k).

3. Room left under $70k: $21,500 available as after-tax contributions.

4. Mega Backdoor conversion: She converts $21,500 after-tax → Roth (in-plan or via in-service rollover to a Roth IRA).

Net Roth this year:

• $23,500 (Roth deferral)

• + $21,500 (after-tax → Roth) = $45,000 into Roth, with $25,000 pre-tax employer dollars remaining.

If she’s 50+: add $7,500 catch-up → $77,500 total. If 60–63: the special $11,250 catch-up lifts the grand total to $81,250 (plan-dependent). IRS

Pro tip: Your W-2 level influences the employer profit share and, therefore, how much after-tax space remains for a Mega Backdoor. Calibrating reasonable comp is strategic. For guidance, see Managing Distributions… and Determining Your Salary… on the blog. SimpliMD+1

Roth 401(k) vs Mega Backdoor Roth—don’t pick, stack

• Roth 401(k): Send your employee deferrals here; there are no income limits and no lifetime RMDs for owners. Simple and available in most plans. IRS

• Mega Backdoor Roth: Uses after-tax contributions up to the 415(c) ceiling, then converts to Roth. Requires plan features (after-tax source + in-plan conversion and/or in-service rollovers). IRS

Optimal approach:

1. Max your Roth 401(k) deferral.

2. Add employer profit share.

3. Fill remaining $70,000 room with after-tax dollars and convert.

4. Still do your Backdoor Roth IRA outside the plan. For broader sequencing, see The Waterfall of Tax-Efficient Investing for Doctors. SimpliMD

Implementation paths (step-by-step)

If you run a Solo 401(k) (PC/PLLC or sole prop)

1. Choose a provider/document that allows after-tax contributions and in-plan Roth and/or in-service rollovers.

2. Set W-2 (S-corp) or net SE income to support your target employer contribution and leave room for after-tax.

3. Elect Roth deferrals first ($23,500; $31,000 if 50+; $34,750 if 60–63 and plan allows). IRS

4. Add employer contribution (S-corp: up to 25% of W-2; sole prop: ~20% of net SE).

5. Fill remaining space to $70,000 with after-tax and convert quickly (monthly/quarterly) to minimize taxable earnings in the after-tax subaccount. IRS

If you’re in a group 401(k)

1. Ask HR/TPA: “Does our plan allow after-tax (non-Roth) contributions and in-plan Roth conversions or in-service rollovers?”

2. If yes, follow the Solo steps. If no, lobby for a plan amendment (increasingly common). Meanwhile, max Roth 401(k) and do the Backdoor Roth IRA. Fidelity

Fine print that matters

• Notice 2014-54 enables basis isolation so after-tax → Roth can be tax-free; coordinate with your custodian to execute correctly. IRS

• Catch-ups are in addition to the $70,000 415(c) cap (standard 50+ catch-up $7,500; age 60–63 super catch-up $11,250 if the plan offers it). IRS+1

• Group plans must pass nondiscrimination testing; very high after-tax rates for owners can be constrained.

Quick checklist to execute this month

• Confirm plan allows after-tax + in-plan Roth / in-service rollover.

• Calibrate W-2 vs distributions (S-corp) to create the target 415(c) mix.

• Elect Roth 401(k) deferrals first; then program after-tax payroll.

• Schedule monthly/quarterly conversions of after-tax to Roth.

• Keep a simple ledger: employee Roth, employer pre-tax, after-tax → date converted.

• Coordinate with your CPA/TPA on testing and year-end true-up.

Lessons from the Field

“A hospitalist I coach was maxing a Backdoor Roth and a pre-tax 401(k) but still parking six figures in a taxable account. We turned on after-tax in her group plan and set up monthly in-plan Roth conversions. Net result: $42,000 more going Roth each year without changing her lifestyle—just changing her plan settings.”

Cross-reads from The Independent Physician (SimpliMD blog)

• Maximizing Tax-Advantaged Retirement Contributions for Self-Employed Physicians (Solo 401(k), SEP, cash balance)—a broader map.

• Solo 401(k) Contribution Limits if You Job-Stack with a W-2 Job—great if you mix locums/1099 with employed work.

• The Waterfall of Tax-Efficient Investing for Doctors—where Backdoor Roth fits.

• Managing Distributions in Your Micro-Corporation (PC/PLLC) Taxed as an S-Corp and Determining Your Salary as a Self-Employed Doctor—dialing W-2 and distributions to support your plan.

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Final thoughts

If your plan supports it, the Mega Backdoor Roth + Roth 401(k) combo is the cleanest way to accelerate tax-free wealth as a physician-owner. Remember the order:

1. Max Roth 401(k) deferrals,

2. Add employer dollars,

3. Fill remaining $70,000 space with after-tax and convert to Roth,

4. Still do your Backdoor Roth IRA outside the plan.

Pair that with a right-sized W-2 and smart profit share, and you’ve built a lifelong, compounding, tax-free engine.

This is educational only—not legal, tax, or investment advice. Confirm with your CPA/TPA and plan documents before acting.