Mega Backdoor Roth 2026: $72,000 Limit, ACP Test, Notice 2014-54

The 2026 numbers, from the notice

Every 2026 dollar figure below is in IRS Notice 2025-67 (“2026 Amounts Relating to Retirement Plans and IRAs, as Adjusted for Changes in Cost-of-Living”). We read it on October 29, 2026.

Source: IRS Notice 2025-67, read and saved October 29, 2026. Notice 2025-67 covers 2026 only. We found no notice with 2027 amounts on October 29, 2026, so every 2027 figure you see elsewhere is a projection until the IRS publishes one.

How much room: the arithmetic of the $72,000

Section 415(c)(1) tests the lesser of the dollar limit and “100 percent of the participant's compensation”. The regulation lists what counts: “employer contributions”, “employee contributions” and “forfeitures”, and for employee contributions it says the term “includes mandatory employee contributions” “as well as voluntary employee contributions”. Rollovers into the plan are not annual additions (26 CFR 1.415(c)-1(b)(3)(i)). Elective deferrals are made through the employer, and 26 CFR 1.401(k)-1(a)(5)(ii) says they “are treated as employer contributions” for section 415.

Two timing facts from the same regulation. Employee contributions are “not treated as credited to a participant's account for a particular limitation year unless the contributions are actually made to the plan no later than 30 days after the close of that limitation year”, so the payroll after-tax election in a calendar-year plan is a year-end decision. And the catch-up is a separate pot: with the $8,000 catch-up the most that can go into the plan at 50 to 59 is $80,000, and with the $11,250 amount at 60 to 63 it is $83,250 (our arithmetic). For the full list of 2026 limits see our 401(k) and IRA contribution limits page.

The ACP test: who gets to use the room

After-tax employee contributions, and employer matching contributions, are tested together under section 401(m). The test compares the average contribution ratio of highly compensated employees (HCEs) with that of everyone else (NHCEs). Under 26 CFR 1.401(m)-2(a)(1)(i) the plan passes if the HCE average “is not more than the ACP for the eligible NHCEs for the applicable year multiplied by 1.25”, or if the excess is not more than 2 percentage points and the HCE average is not more than 2 times the NHCE average. The ratio of each employee is the employee and matching contributions divided by compensation (26 CFR 1.401(m)-2(a)(3)(i)), and the plan may use the prior-year or the current-year NHCE figure (26 CFR 1.401(m)-2(a)(2)(ii)).

Ceiling = the greater of 1.25 times the NHCE average and the lesser of 2 times the NHCE average or the NHCE average plus 2 points. Room = (ceiling minus 3%) times $360,000, the 2026 section 401(a)(17) limit used as an assumed pay figure. The test is on the HCE average, so one HCE can contribute more if others contribute less.

Three things follow. First, the dollar room in the table above is the Code's ceiling; the ACP test can make it much smaller, and the smaller number is the one you can actually use. Second, the safe harbor methods in section 401(m)(10), (11) and (12) each treat a plan as meeting the test “with respect to matching contributions”; after-tax employee contributions stay in the test. Third, if the plan has no eligible NHCEs, 26 CFR 1.401(m)-2(a)(1)(ii) says it “is deemed to satisfy the ACP test”, which is why owner-only plans are not troubled by it.

If the plan fails, section 401(m)(6)(A) lets it correct by distributing the excess aggregate contributions and their income “before the close of the following plan year”. The employer owes a 10 percent tax (section 4979(a)) unless the excess is distributed within 2 1/2 months after year end (section 4979(f)(1)), which for a calendar-year plan is March 15, 2027. The refund goes to the HCEs, and section 401(m)(7)(B) says a distribution attributable to employee contributions is not income “except to the extent attributable to income on such contributions”. If those dollars were already converted, Notice 2013-74 Q&A-11 says the excess “must be distributed from the designated Roth account”.

Two ways out of the after-tax account

The after-tax dollars have to reach a Roth account, and the plan decides which door exists. Each is a separate plan provision.

For the in-plan route, the taxable part of the rollover is exposed to the 10 percent additional tax if it is distributed within 5 taxable years: Notice 2010-84 Q&A-12 gives the example of a distribution containing $6,000 of the taxable amount carrying an additional tax of $600, and the 2026 Form 1099-R instructions add box 10 for it. Notice 2013-74 Q&A-6 lets a plan restrict which contributions are eligible and how often a rollover can be made, so ask how often yours runs.

Notice 2014-54: where the pro-rata trap is

An account that holds pretax money and after-tax money pays out both. Notice 2014-54 starts from section 72(e)(8): each distribution “will include a pro rata share of both after-tax and pretax amounts”, and it adds that “all disbursements of benefits from the plan to the recipient that are scheduled to be made at the same time” “are treated as a single distribution without regard to whether the recipient has directed that the disbursements be made to a single destination or multiple destinations”. Section 72(e)(8)(B) sets the after-tax share at the ratio of investment in the contract to the account balance.

The notice then tells the recipient where the pretax dollars go. If the pretax amount is less than what is directly rolled over, “the entire pretax amount is assigned to the amount of the distribution that is directly rolled over”, and the recipient can choose among the destinations by telling the plan administrator before the rollovers. Its Example 4 is the mega backdoor in miniature: Employee C has $250,000 ($200,000 pretax, $50,000 after-tax), asks for $100,000, and directs $80,000 to a traditional IRA and $20,000 to a Roth IRA; the $80,000 is the pretax part, so the $20,000 in the Roth IRA is all after-tax. The distribution rules generally apply to distributions made on or after January 1, 2015 (Notice 2014-54, section VI).

Here is the same mechanism on an assumed account (our arithmetic, assumed figures): $180,000 of pretax money (deferrals, match and their earnings) and a $60,000 after-tax source, which is $54,000 of contributions and $6,000 of earnings. The ratio on the whole account is $54,000 of basis to $240,000, 22.5%.

The first row is the pro-rata trap: $46,500 of a $60,000 move is taxed because the plan treats the pretax money as part of it. The second and third rows avoid the tax but send pretax dollars to a traditional IRA, and 26 U.S.C. 408(d)(2) then counts that IRA on December 31 in the Form 8606 pro-rata calculation, the mechanism covered on our backdoor Roth and pro-rata page and in our Form 8606 line-by-line guide. The fourth row is what many plans advertise; Notice 2014-54 illustrates the ratio on the whole “account balance”, and whether a plan measures after-tax money against its own sub-account is a plan-administrator question we could not verify from the documents. Section 402A(d)(4) keeps a designated Roth account as a separate contract, so an existing Roth 401(k) balance is outside the ratio (our reading).

Earnings, and how often you convert

Only the earnings are taxed, so the speed of the sweep matters. Our arithmetic: $37,500 paid in as 12 month-end deposits of $3,125, with an assumed annual return compounding monthly.

At an assumed 35% rate, the gap between a yearly and a quarterly sweep at 6% is about $293 of tax on $37,500. It is small because the money sits only months; it grows with the balance and with the number of years the after-tax balance is left unconverted. The plan, not you, usually fixes the schedule (Notice 2013-74 Q&A-6).

The Roth catch-up rule and the mega backdoor

Two rules often get tangled. The catch-up is not an annual addition, so it does not reduce the room. And for higher earners the catch-up itself changes form.

Notice 2025-67 says the Roth catch-up wage threshold “for 2025” “is used to determine whether an individual's catch-up contributions” “for 2026 must be designated as Roth contributions” and is $150,000. Notice 2023-62 set an administrative transition: until “taxable years beginning after December 31, 2025”, catch-up contributions were treated as satisfying the rule even if not Roth. That transition is over for 2026. The final regulation, 26 CFR 1.414(v)-2, applies to taxable years beginning after December 31, 2026, with a good-faith standard for earlier years, and it says that if a plan has no qualified Roth contribution program, the maximum catch-up for a covered participant “is $0”. Wages are FICA wages from the employer sponsoring the plan (26 CFR 1.414(v)-2(a)(2)), so partnership income is not wages (the regulation's Example 1 in paragraph (d)(1) shows a partner whose pay changed mid-year).

For a mega backdoor reader the practical reading is this (our reading): a plan that offers in-plan Roth rollovers already has a Roth program, so a catch-up designated Roth is possible; it is a designated Roth contribution made through elective deferrals, so it needs no conversion, and it does not use the $72,000. Our Roth catch-up page covers who is inside the test.

The regulation's own examples assume a 2027 elective limit of $25,000, a catch-up of $8,000 and a wage threshold of $155,000. They say so as assumptions; they are not published limits and we do not use them.

What your plan document has to say

The Code allows each step, but each is optional for the employer. Ask the plan administrator for the plan document or summary plan description and check these items:

• After-tax contributions allowed, up to what percentage of pay or dollar amount, and whether payroll can be set to the room that remains after your deferrals and the employer's year-end contribution.
• In-plan Roth rollover: which sources are eligible, how often, and whether it is automatic (sweep) or by election.
• In-service distribution of the after-tax source: at what age or service, and whether it can go to a Roth IRA directly.
• How the plan splits pretax and after-tax in a distribution, and whether it follows Notice 2014-54 allocation instructions when you give them in advance.
• ACP testing: prior-year or current-year method, the last two results, and whether HCEs have been refunded. A history of refunds means the room on paper is not the room you can use.
• Employer contributions timing: a year-end profit-sharing contribution comes after your payroll and can use up room you thought you had (26 CFR 1.415(c)-1(b)(6)(i)(B) and (C) set the timing rules).
• Reporting: expect Form 1099-R with code G for the in-plan route (2026 instructions).

What a reader can do with this

• Compute your room first. Take $72,000, subtract your planned deferral and every employer dollar, including a year-end profit-sharing contribution. Use the table above; if the answer is under a few thousand dollars the strategy is not worth the paperwork.
• Ask for the ACP result, not just the plan feature. The plan may allow after-tax contributions yet refund HCEs every year.
• Pick the door before you fund it. If the plan has only an in-service distribution and holds a large pretax balance, run the table in the Notice 2014-54 section with your own balances.
• Ask whether you can give allocation instructions. Notice 2014-54 lets the recipient choose where the pretax amount goes if the instructions reach the plan administrator before the rollovers.
• Keep the traditional IRA question separate. Pretax dollars sent to a traditional IRA join the December 31 total; see the backdoor Roth page.
• Dates. For a calendar-year plan, December 31, 2026 closes the 2026 payroll contributions, and March 15, 2027 is the 2 1/2 month mark for correcting ACP excesses without the employer excise tax. The 2027 limits are not published; recheck when the IRS issues them.

FAQ

Sources, read and saved on October 29, 2026: IRS Notice 2025-67, Notice 2023-62, Notice 2014-54, Notice 2013-74 and Notice 2010-84; 26 U.S.C. 72, 401, 402A, 414, 415 and 4979 (Cornell Legal Information Institute); 26 CFR 1.401(k)-1, 1.401(m)-2, 1.414(v)-2 and 1.415(c)-1; Instructions for Forms 1099-R and 5498 (2026). The accounts, balances, returns, the $360,000 pay figure and the 35% rate are assumptions; all sums are our arithmetic. This is analysis of public documents, not investment, legal or tax advice.