My employer offers a 401(k) plan through Vanguard to its employees.

There exist two types of Roth IRA Rollover:

  1. Convert from a non-deductible traditional IRA to a Roth IRA (a.k.a., "Roth IRA backdoor")
  2. Convert from an after-tax 401(k) to a Roth IRA (a.k.a., "mega Roth IRA backdoor")

Anyone may perform a "Roth IRA backdoor", regardless of their employer's policies. However, regarding a "mega Roth IRA backdoor", it has to be allowed by the 401(k) plan that the employer proposes through Vanguard. Vanguard can support "mega Roth IRA backdoor" but some employers may not choose this option when setting up their 401(k) plan with Vanguard.

Why would an employer not allow their employees to perform a "mega Roth IRA backdoor"?

  • 3
    Your employer would have nothing to say about a backdoor Traditional IRA to Roth IRA conversion.
    – Eric
    Nov 2, 2017 at 21:58
  • @Eric: thanks, good point. I edited the question accordingly. Nov 2, 2017 at 22:12
  • 1
    I believe the mega backdoor refers to an in-plan conversion from after-tax 401(k) to Roth 401(k). You cannot usually move money out of the 401(k) unless you have left the company.
    – user102008
    Nov 3, 2017 at 1:34
  • 2
    @user102008 Mega backdoor Roth can refer to after-tax 401(k) to pre-tax/Roth 401(k) or to Traditional/Roth IRA. See this link, for example.
    – Craig W
    Nov 3, 2017 at 2:05

2 Answers 2


My educated guess: cost, both in dollars and time.

First off, adding an after-tax option adds another layer of complexity. I would not be surprised if 401(k) providers charged more for it. On top of that, human resources people will have to answer questions from employees about what the difference is between Roth and after-tax (if they know themselves). Then you have the whole issue of in-service withdrawals which are not absolutely necessary but very helpful to utilize the mega backdoor Roth. The 401(k) provider won't like that because they're taking money out of their system and moving it to the employee's brokerage of choice. And it's more paperwork for them. So I would bet they charge more for this feature too. Also remember that relatively few people even max out the available $18k (for 2017) of pre-tax/Roth 401(k) space. So why would employers pay more for features that will just confuse their employees and HR while not benefiting many of them? In large corporations I think the mega backdoor Roth is more common because they have more leverage to negotiate with 401(k) providers. But for smaller companies it's often just not worth the cost or trouble.

EDIT: Another thing I thought of--it's likely that the people setting up a 401(k) for their company often don't understand the implications of the mega backdoor Roth. Or they may think nobody could possibly save enough to take advantage of it. Frequently you hear about people that want to set their 401(k) contribution rate higher than is allowed. There is absolutely no reason to limit this except for highly compensated employees in plans that undergo discrimination testing. I think it's just a case of HR people thinking "who would possibly save more than 50% of their income?" and so they believe that's a reasonable limit.

  • 1
    Thanks. If anyone has any estimate of the price the employer would have to pay to the 401(k) plan provider (e.g., Vanguard) to enable the mega backdoor Roth IRA, I'm interested. Nov 3, 2017 at 18:10
  • I would love to know as well. It would be great if somebody from a 401(k) provider or somebody who has set set one up for their company had a breakdown of all the fees involved.
    – Craig W
    Nov 3, 2017 at 19:05

This upvoted Money.SE answer claims that it is illegal for 401(k) plans to make the non-hardship in-service distributions that are necessary for the mega backdoor Roth conversion to participants under the age of 59 1/2. In my opinion, the answer gives pretty good, but not overwhelming evidence, that this is the case.

(I have trouble understanding why so many people discuss the mega backdoor Roth without mentioning the fact that it's impossible for people under 59 1/2 to complete if, indeed, that is the case.)

  • +1 This question actually has nothing to do with a mega backdoor rollover, this is about the plan allowing "in-service distributions" regardless of the reason for the distribution. I know my 401(k) plan will allow me an in-service distribution of the money I rolled in when I joined the company.
    – quid
    Jan 22, 2021 at 8:01

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