Solo 401(k) Mega Backdoor Roth: Filling the Last $22,500 of a $72,000 Limit

For 2026 a solo 401(k) can take $72,000 for one owner, before catch-ups. An S corporation owner paying a $100,000 salary reaches $49,500 with a full deferral and the 25% employer contribution, and the plan stops there unless it was written to take more.

The other $22,500 can go in as after-tax contributions and be converted to Roth inside the plan, the move usually called the mega backdoor Roth. It works only if the plan document allows after-tax contributions and either in-plan Roth conversions or in-service withdrawals.

We think every owner who funds a solo 401(k) past the deferral should check those two features before the last payroll of the year.

1. Where the $72,000 comes from

The IRS describes the owner of a one-participant 401(k) as wearing two hats. As the employee you make elective deferrals. As the employer you make a nonelective contribution. Both land in the same account.

Two limits from Notice 2025-67 control 2026. Elective deferrals under section 402(g) top out at $24,500, pretax and Roth combined. Total annual additions under section 415(c) top out at $72,000, or 100% of your compensation if that is lower. Under section 415(c)(2), annual additions include employer contributions and employee contributions, and after-tax money counts as an employee contribution.

Catch-up contributions sit outside the $72,000. At 50 or older the 2026 catch-up is $8,000, and at ages 60 through 63 it is $11,250, which puts the ceilings at $80,000 and $83,250 on the IRS contribution limits page.

2. The employer contribution depends on how you are taxed

An S corporation owner is a W-2 employee. The company can deduct profit-sharing contributions up to 25% of compensation paid to plan participants under section 404(a)(3). On a $100,000 salary that is $25,000, and the salary is the only base. Profit you take as distributions adds nothing.

A Schedule C owner, including a single-member LLC, has no salary. The base is net earnings from self-employment less half of the self-employment tax, which is deductible, and the contribution itself comes out of that base too. Publication 560 handles the circular math with a rate table: a plan rate of 25% becomes 20% for a self-employed owner.

So set the salary and the retirement contribution together. We cover how to pick the salary in our post on setting an S corporation salary.

3. Two owners, $200,000 of profit each

One owner, 45 years old, no other job, with $200,000 of profit in 2026 before retirement contributions. We run it twice: once as a sole proprietor, and once as an S corporation that pays the owner $100,000 of salary. Both versions defer the full $24,500.

The wage base is the 2026 figure from the Social Security Administration. Neither owner hits the 100% of compensation cap. The sole proprietor's compensation after the employer contribution is about $148,706, and the S corporation owner's is $100,000.

The S corporation owner has more than twice the after-tax room, because the employer contribution runs off a $100,000 salary instead of a $185,883 base. The sole proprietor still puts in more deductible money, $37,176 of employer contribution against $25,000, and the S corporation's extra room is after-tax money with no deduction. To fill $72,000 without any after-tax money, the S corporation would need a $190,000 salary, and a sole proprietor would need roughly $252,000 of profit.

4. How after-tax money becomes Roth

After-tax contributions on their own are a weak deal. You get no deduction, and the growth is taxed when it comes out. The value comes from moving the money into Roth quickly, so the growth after that point can come out tax-free under the Roth rules.

There are two routes, and the plan document has to permit the one you use:

• In-plan Roth rollover. Section 402A(c)(4)(E) lets a plan with a Roth program transfer amounts you could not otherwise withdraw into your designated Roth account. Notice 2013-74 covers how plans offer it.
• In-service withdrawal to a Roth IRA. If the plan lets you take after-tax money out while still working, Notice 2014-54 lets you send the after-tax portion to a Roth IRA and any pretax earnings to a traditional IRA.

Either way, the after-tax contributions themselves convert without tax. Any growth between the contribution and the conversion is taxable in the year of the conversion, with no 10% early distribution tax on an in-plan rollover. Converting soon after each deposit keeps that growth close to zero.

The IRS one-participant 401(k) page says an owner-only plan needs no nondiscrimination testing because there are no other employees. That is what makes after-tax contributions workable in a solo plan. The page also warns that the exemption ends once you hire employees who become eligible for the plan. After-tax contributions are then tested under section 401(m), and the safe harbor designs that exempt deferrals and matching contributions do not cover them. With eligible staff, large after-tax deposits by the owner often fail that test.

5. Catch-ups at 50, 60 to 63, and the Roth catch-up rule

Catch-ups are elective deferrals, so they come from you as the employee and need compensation to support them. They do not use up any of the $72,000.

SECURE 2.0 added a wage test in section 414(v)(7). If your FICA wages from the employer sponsoring the plan were over $150,000 in 2025, your 2026 catch-ups must be designated Roth. The plan also has to offer Roth deferrals, or catch-ups are off the table for that plan. The IRS treated 2024 and 2025 as a transition period. That period is over, so the rule applies to 2026 catch-ups. The final regulations apply from 2027, and for 2026 plans must follow a reasonable, good faith reading of the statute.

The test counts FICA wages only. A sole proprietor's self-employment income is not FICA wages, so the rule does not reach a Schedule C owner. An S corporation owner whose 2025 W-2 from the company showed more than $150,000 of FICA wages is covered. In our example the $100,000 salary is well under the line.

6. If you also have a job with a 401(k)

The $24,500 deferral limit is per person across every plan you join. If your day job's 401(k) already took the full amount, the solo plan gets no deferrals in 2026.

The $72,000 annual additions limit works per employer instead. The IRS's own example on the limits page has an employee who maxed a workplace deferral and still made a full nonelective contribution to a solo plan for a side business. Unrelated employers each get their own $72,000, though your side business has to generate enough earnings to support the contributions.

For the mega backdoor that means the solo plan can still take after-tax money up to its own $72,000, less the employer contribution, even when you have no deferral room left.

7. The 2026 deadlines

Under section 401(b)(2), a plan adopted by the business's return due date, including extensions, can be treated as adopted on the last day of the tax year. That saves the employer contribution, not the deferral.

Deferrals follow the cash. Treasury Regulation 1.401(k)-1 allows an election only on pay you have not yet received, and only after the plan exists. An S corporation owner has to adopt the plan and elect before the last 2026 paycheck. A sole proprietor's pay is treated as received on December 31, so an owner with an existing plan elects by then.

SECURE 2.0 opened one exception. A sole owner of an unincorporated business who is its only employee can make deferrals for a brand-new plan's first year up to the unextended due date of the personal return, which is April 15, 2027 for 2026. Employer contributions can be deposited as late as the return's due date with extensions under section 404(a)(6).

After-tax contributions do not get the April exception. For an S corporation we run them through payroll during the year, the same way as the deferral.

8. Form 5500-EZ once the plan passes $250,000

Under the current (2025) Form 5500-EZ instructions, a one-participant plan files once the assets of all the owner's one-participant plans combined exceed $250,000 at the end of the plan year. Every plan also files for its final year, whatever the balance.

The return is due on the last day of the seventh month after the plan year ends. For a 2026 calendar-year plan that is July 31, 2027, a Saturday, so it moves to Monday, August 2, 2027. Filing Form 5558 by that date extends it once, by up to two and a half months. The instructions cite a penalty of $250 a day, up to $150,000 per plan year, for a late return. A plan that takes $72,000 a year can cross $250,000 in its fourth year from contributions alone, and sooner with investment growth or a spouse's account in the plan.

9. Steps before the last 2026 payroll

• Read the adoption agreement. Look for after-tax employee contributions, a Roth deferral option, and in-plan Roth rollovers or in-service withdrawals of after-tax money. If any is missing, ask the plan provider for an amendment before you deposit.
• Size the employer contribution first. Use 25% of W-2 pay for an S corporation, or the Publication 560 worksheet at 20% for a sole proprietor, swapping in the 2026 limits for the 2025 figures it prints, then take the gap to $72,000.
• Check your 2025 W-2. If your FICA wages from the company were over $150,000 and you are 50 or older, set your 2026 catch-up as Roth.
• Convert each deposit promptly. The longer after-tax money sits, the more taxable growth the conversion carries.
• Calendar the filings. The employer deposit by the return due date, and Form 5500-EZ once assets pass $250,000.

Our tax planning work includes sizing these contributions each year. We figure the employer contribution from your W-2 or Schedule C, check the plan document for the after-tax and conversion features, and set up the payroll deductions so the money lands in the right year. Book a call and bring your 2025 W-2 or Schedule C, your profit to date for 2026, and your plan's adoption agreement. Elections for an S corporation have to be in place before the final December paycheck. Start early in the quarter so there is time to amend the plan if it needs it.

General information for owner-operators, not tax advice. Thresholds change and state treatment varies; confirm current requirements for your own facts before acting.