Comparison Table of 401(k), Roth 401(k), IRA, and Roth IRA
| Features | 401(k) (Traditional) | Roth 401(k) | IRA (Traditional) | Roth IRA |
| Opening Plan | Employer sponsored | Employer sponsored | Any individual | Any individual |
| Contribution | before-tax (tax deferred to distribution) (contribution deducted from W2 taxable income) | after-tax (contribution not deducted from W2 taxable income) | before-tax (tax deferred to distribution) (contribution deducted from W2 taxable income) | after-tax (contribution not deducted from W2 taxable income) |
| Distribution | taxed as income (on contributions and gains) | tax-free (on contributions and gains) | taxed as income (on contributions and gains) | tax-free (on contributions and gains) |
| Contribution limit | [Combined with Roth 401(k)] 2022: $20,500 2023: $22,500 2024: $23,000 2025: $23,500 | [Combined with 401(k)] 2022: $20,500 2023: $22,500 2024: $23,000 2025: $23,500 | [Combined with Roth IRA] 2022: $6,000 2023: $6,500 2024: $7,000 2025: $7,000 | [Combined with IRA] 2022: $6,000 2023: $6,500 2024: $7,000 2025: $7,000 |
| Employer match | Employer may match | Employer may match Match goes to your 401(k) pre-tax. It may allow moving to Roth 401(k) after paying tax. | N/A | N/A |
| Contribution limit Employee + Employer | [Combined with Roth 401(k)] 2023: $66,000 or income 2024: $69,000 or income 2025: $70,000 or income | [Combined with 401(k)] 2023: $66,000 or income 2024: $69,000 or income 2025: $70,000 or income | N/A | N/A |
| Catch-up contribution (age 50+) | [Combined with Roth 401(k)] 2022: $6,500 2023: $7,500 2024: $7,500 2025: $7,500 2026: – <$145k incomer: $7,500 – >$145k incomer: $0. must contribute to Roth 401(k) | [Combined with 401(k)] 2022: $6,500 2023: $7,500 2024: $7,500 2025: $7,500 2026: $7,500 | [Combined with Roth IRA] 2025: $1,000 | [Combined with IRA] 2025: $1,000 |
| (Modified AGI) Income limit to be able to contribute (married file jointly) | No income limit | No income limit | Phase-out range: You in work retirement plan: 2024: $123k-$143k Spouse in work retirement plan: 2024: $230k-$240k Neither in work retirement plan: No income limit | Phase-out range: 2023: $218k-$228k 2024: $230k-$240k 2025: $236k-$246k |
| (Modified AGI) Income limit to be able to contribute (single / household head) | No income limit | No income limit | Phase-out range: 2023: $73k-$83k 2024: $77k-$87k | Phase-out range: 2023: $138k-$153k 2024: $146k-$161k 2025: $150k-$165k |
| Investment | Plan may restrict | Plan may restrict | More flexible | More flexible |
| Fees and costs | May be higher | May be higher | May be lower | May be lower |
| Employment termination | – leave as; – transfer to new job’s plan; – rollover to IRA; – take distribution (may have penalty) | – leave as; – transfer to new job’s plan; – rollover to Roth IRA; – take distribution (may have penalty) | No impact | No impact |
| Withdrawl age | 59.5 | 5+ year account and (59.5 or disabled or death) Special rule if age>55 and job termination. | 59.5 | 5+ year account and (59.5 or exceptions: disabled, 1st home buy) |
| Early withdrawl penalty | 10% penalty | 10% penalty and tax complexity on gain | 10% penalty | 10% penalty and tax on gain |
| Required Minimum Distributions (RMD) | Must begin at 73. Amount depends on balance and life expectancy. | no requirement if alive; leave to your heirs; | Must begin at 73. Amount depends on balance and life expectancy. | no requirement if alive; leave to your heirs; |
Backdoor Roth IRA
If you are a high income earner, you may not be able to contribute to a Roth IRA account (unrelated, but neither traditional IRA). For this, you may consider to create a backdoor Roth IRA. This is legal, but it has pros and cons, and may not be suitable for everyone.
You can rollover some traditional IRA or 401(k) balance to a Roth IRA, or close and convert a traditional IRA or 401(k) account to a Roth IRA. This rollover or conversion is moving pre-tax money to after-tax, and you owe income tax for the year immediately.
Note that rollover or conversion is not subject to contribution limit to Roth IRA, which is often low ($7,000 in 2025). Basically, you can rollover or conversion any amout from traditional accounts to Roth IRA. But of course, you owe more income taxes if you convert more, potentially pushing to a higher tax bracket.
For people that don’t have traditional IRA, backdoor Roth IRA means moving/converting money from (traditional) 401(k) to Roth IRA by adding moved money as taxable income for the year, disregarding income limit that would otherwise apply. Depending on how much is moved/converted, this may increase your W2 taxable income considerably.
If you can contribute to Roth 401(k), Roth IRA is attractive. They serve the same goal (tax-free on gains), but Roth 401(k) has less restrictions.
In a sense, employer sponsored Roth 401(k) is like a backdoor, since now you get access to a “Roth” account, although Roth 401(k) is not Roth IRA, it is better than Roth IRA.
Mega Backdoor Roth
A lot of employer sponsored retirement plan allows you to contribute to both 401(k) and Roth 401(k) accounts. However, take this example:
- You contribute $13,500 to 401(k) and $10,000 to Roth 401(k), reaching employee contribution limit $23,500.
- Your employer matches 6% of your income, say $10,000. This could go into your 401(k), or proportionally into both 401(k) and Roth 401(k).
- The total limit is $70,000.
- There is a $70,000 – $23,500 – $10,000 = $36,500 hole. What can you do with it?
The answer is that, you may use it as “after-tax 401(k) contributions”. This is neither pre-tax nor after-tax contribution, but somewhere in between.
| Type of 401(k) contribution | Contribution | Withdrawl in retirement | Notes |
| Pre-tax | Contribute pre-tax | Pay ordinary income tax on contributions and gains; | |
| Roth | Contribute after-tax | Pay no tax on contributions and gains; | |
| After-tax | Contribute after-tax | Pay no tax on contributions; Pay ordinary income tax on gains; | Maybe not eligible for employer match |
It apperas that after-tax 401(k) contribution does not have benefits: after all, you can take cash and invest yourself, and the gain will again be taxed (but as short term/long term gains).
The real benefit is that, the after-tax 401(k) contribution can be converted to a Roth account. The money can be moved to a Roth 401(k) account, so called in-plan Roth conversion. When the conversion happens, there is no tax for the amount of your contributions, but any gains will incur tax. Normally, you need to (set up) periodically rollover “after-tax 401(k) contributions” to Roth 401(k).
The reason that this is called mega backdoor, is because of the large amount it can convert into Roth. In the example above, this amount is larger than half of the $70,000 limit of 401(k) contribution.
In Fidelity, go to Contributions -> Change Contributions -> Contribution Maximizer, under “In-Plan Roth Conversion”, choose “Convert After-Tax to Roth” is basically Mega Backdoor Roth. If this is the first time, refreshing the page may show choice reverted – wait for one day or two to show correctly.
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