"The IRS sets two separate limits for 401(k) plans. The employee deferral limit for 2026 is $24,500. A separate ceiling under Section 415(c) governs total contributions to a defined contribution plan, covering employee deferrals, employer contributions, and after-tax contributions combined."
"The stakes are real. Roth accounts grow without taxes on earnings and require no minimum distributions in retirement. At a 10-year Treasury yield of roughly 4.3% baseline, the long-run advantage of tax-free compounding over taxable or tax-deferred growth compounds significantly over decades."
High earners often exceed income limits for direct Roth IRA contributions, which phase out for singles earning above $168,000 and couples above $252,000 in 2026. The Mega Backdoor Roth strategy allows these individuals to contribute up to $47,500 annually to tax-free Roth accounts through their 401(k) plans. This strategy leverages the gap between employee deferral limits and total contribution ceilings set by the IRS, enabling significant tax-free growth over time.
Read at 24/7 Wall St.
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