Backdoor Roth, Mega Backdoor Roth & Your IRMAA/ACA Costs
A Roth conversion can feel like a clean win. Move money now, pay tax on your terms, and let the rest grow tax-free for qualified withdrawals. Then a client’s Medicare premium jumps, or their ACA subsidy disappears, and the conversion doesn’t feel so clean anymore.
Boldin’s clients ask about this all the time. Boldin Advisors Andy Barton and Brie Black, both CFP® professionals, recently focused a session on answering questions like these. Backdoor Roths, mega backdoor Roths, IRMAA surcharges, and the exact moment a bigger tax bill still makes sense. Their answers are below, trimmed for length but kept in their own words.
What’s the Difference Between a Backdoor Roth, a Mega Backdoor Roth, and a Roth Conversion?
A Roth conversion moves money already sitting in a traditional IRA or 401(k) into a Roth account. A backdoor Roth gets new contributions into a Roth for people whose income is too high for a direct contribution. A mega backdoor Roth does the same thing at a much larger scale, through an employer plan.
Direct and backdoor Roth IRA contribution rules
Start with the standard version. Brie laid out the two requirements for a direct Roth IRA contribution:
“One, you have to have income… And two, you have to make an income lower than about $250,000 if you’re filing a married filing jointly return. So, if you meet those two requirements, you can stick $7,500 directly into a Roth IRA this year [2026].”
Anyone 50 or older can add the $1,100 catch-up, bringing the total to $8,600.
If your income is over the income limit, the backdoor route runs through a different account first:
“The same requirements are needed here when it comes to income. You have to have income in order to do this. But you’re able to put money into what’s called a non-deductible IRA…. You put in $7,500, you wait a day, you can convert that money right away from that non-deductible IRA into a Roth IRA. And you pay no taxes on it because you didn’t get a tax break when you put that money in.”
Brie flagged one thing that trips up almost everyone who tries this without checking their other IRA balances first. The IRS applies the pro rata rule: if you already hold pre-tax money in any IRA, you can’t choose to convert only your new non-deductible contribution. The conversion gets taxed proportionally across all your IRA dollars, pre-tax and non-deductible combined.
“There’s a very important rule that sometimes gets skipped here, and it’s a pro rata rule. All you get to say is, ‘I want to convert $7,500.’ It’s a percentage based on how much sits in your old pre-tax account versus your new non-deductible contribution.”
In plain terms, the IRS blends your pre-tax and non-deductible dollars together. You can’t cherry-pick which pool you’re converting from. Someone with $100,000 sitting pre-tax in an old 401(k) rollover IRA who then contributes $7,500 non-deductible would have roughly 93% of that conversion come through as taxable, not tax-free. Anyone with an old 401(k) rolled into an IRA needs to run this math first, before assuming a backdoor Roth comes tax-free by default.
How the mega backdoor Roth works
The mega backdoor Roth depends entirely on whether your employer’s plan allows after-tax contributions. It’s a plan feature, not a right. Many employers don’t offer it.
Where it does exist, Andy laid out the two numbers that matter. You can put up to $24,500 into a Roth 401(k) this year, and a separate $72,000 ceiling caps the total of your contributions, your employer’s, and any after-tax contributions combined. If your plan allows after-tax contributions, you can fill the space between those two numbers and convert it to Roth right away.
“If your company allows it, you can then put in after-tax money into this plan, and we can convert this right away, move it into a Roth, and it will be treated just like your other Roth money that you have already put in.”
Check with your plan administrator before counting on this option. Plenty of employers cap contributions well below the $72,000 total limit.
Market timing across all three conversion types
Timing matters for any of these three moves, not just a standard conversion. Brie pointed out that a down market can make a planned conversion cheaper:
“I really like accelerating Roth conversions during market uncertainty. If you know that you’re going to do a $50,000 Roth conversion at the end of the year, doing it while the market is down is a great way to capitalize on that. You’re paying taxes on a lower amount, and then you get to see the market recovery inside of the Roth.”
Converting during a down market means paying tax on a smaller number for the same shares.
Will a Roth Conversion Increase Your Medicare Costs or Cost You ACA Subsidies?
A Roth conversion can raise your Medicare costs through IRMAA and cut off ACA subsidies, in the same tax year. Both effects trace back to the same cause: the conversion adds to your taxable income. Andy broke down the Medicare side first:
“As your income increases, if you’re purposefully increasing your income through Roth conversions, if you get over that first IRMAA threshold, you start paying additional $80 a month on top of your standard Medicare premium. Part B this year is $202.90 a month. The first tier of IRMAA is an extra $81 a month… And then it ticks up from there.”
If you’re not yet on Medicare, the risk runs through ACA subsidies instead. Andy explained the income cutoff:
“In general, the ACA subsidies, if your income is below certain thresholds… it’s typically 400% of the federal poverty line, depending on your household size. If you’re under those income limits… you qualify for credits towards your monthly premium on the ACA open market exchange.”
For a two-person household, that ceiling is $81,760 in 2026.
Andy also flagged that the enhanced subsidies added during the pandemic are no longer in effect, with their future depending on Congress:
“There’s two tiers of the ACA subsidies. There’s the standard subsidies, which are still in place, and then there were higher COVID subsidies that were in place for a number of years.”
Those enhanced credits expired at the end of 2025. Anyone estimating ACA costs for the current year should plan around standard, pre-enhancement subsidy rules until Congress acts.
Healthcare.gov’s premium tax credit tool gives a household-specific estimate based on your income and family size. The Kaiser Family Foundation’s subsidy calculator shows the same breakeven point and reflects the status of the expired enhanced credits.
How Does the IRMAA Lookback Affect Roth Conversion Timing Before Medicare?
IRMAA runs on a two-year income lookback. A conversion you do now can echo into your Medicare bill years later. Andy explained the mechanics:
“The thing to remember about IRMAA is that it’s not based on your current year of income. It has a 2-year income look-back in it. So, if you’re on Medicare today, in 2026, they’re actually looking at income from 2024 in order to determine today’s IRMAA amount.”
That lag cuts both ways, and advisors use it on purpose. Converting more before you turn 65 can lower your IRMAA bracket later. Required minimum distributions in your 70s and 80s would otherwise push you into it:
“Roth conversions, oftentimes we use that as a tactic to decrease IRMAA over time. If we kind of let the money hang out in the pre-tax IRA and then you’ve got really high required minimum distributions in your 70s and 80s, that can trigger IRMAA as well. So oftentimes we’ll do some more aggressive Roth conversions in the early years of retirement… perhaps increase your IRMAA strategically in those years… in order to decrease it across your life.”
Why Do Advisors Recommend Roth Conversions Even When They Lower Your Net Worth?
Net worth on a spreadsheet isn’t the same as spendable, after-tax money. That difference explains why advisors still recommend converting even when the account balance drops. Andy walked through the math with round numbers:
“When you do a Roth conversion, your overall net worth is probably going to come down right away… Let’s say I’ve got all my money — a million dollars — in a traditional IRA right now, and that’s it… If I do a Roth conversion and pay taxes out of that, all of a sudden I might have $900,000 in a Roth IRA. So, my net worth came down, right? But when you have a million dollars in an IRA, it’s not all yours. You still have to pay Uncle Sam when you have access to that. But, if I have $900,000 in a Roth, I can have all of that completely tax-free.”
The math shifts again once you factor in who inherits the money:
“Maybe in retirement you and your spouse are in the 12% tax bracket and you’ve got two kids who are both really successful neurosurgeons making a million dollars a year…. Would you rather them pay taxes at their tax rates, or do you pay taxes at the 12% rate, have that money in a Roth, and be able to pass that on to your kids completely tax-free?”
Not every client should convert everything. Brie noted that charitable intent changes the math:
“If you want to give a bunch of money to charity in retirement, then maybe we don’t convert every dollar to Roth. We save it to do qualified charitable distributions.”
Qualified charitable distributions let you satisfy a required minimum distribution by giving straight to charity, skipping the tax bill on that withdrawal entirely.
What Is Boldin’s Roth Conversion Explorer, and How Do You Control Its Pace?
The Roth Conversion Explorer is a feature inside the Boldin Planner that models a full conversion schedule against your specific accounts, income, and retirement timeline. It’s designed to optimize for the lowest lifetime tax bill, which can mean converting a large share of your balance in the early retirement years, before Social Security or RMDs add to your income.
Brie noted you have more control over the tool’s output than the default settings suggest. You can set personal guardrails inside the tool, like capping annual conversion amounts or holding onto a specific cash cushion in your taxable accounts:
“There are ways within the Explorer to limit the amount of conversion you do. You can protect a certain level of your taxable accounts if that’s something you’re wanting to do.”
An advisor’s version of the analysis offers a menu instead of a single answer:
“One thing that I really love about the way that we do the Roth Conversion analysis… is that we show you a few different options that meet those goals. You can do less aggressive Roth conversions in the early years of retirement and ramp it up over time if that’s something that concerns you… The earlier we get that money into Roth, generally the better, but this is your money.”
Every client’s account mix, income sources, and health coverage look different. That’s why Andy and Brie keep coming back to “it depends.” A Boldin Advisor can run these scenarios against your specific plan and adjust it as your income changes.
Frequently Asked Questions
There’s no limit on how many years you can use the backdoor Roth strategy, only limits on how much you contribute each year. If your income stays above the direct contribution threshold, you can repeat the non-deductible IRA contribution and conversion every year. Just watch the pro rata rule if you’re carrying pre-tax IRA balances from previous years.
Recharacterization, the old process for undoing a Roth conversion, disappeared under the 2017 tax law changes that took effect in 2018. Once you convert money from a traditional IRA or 401(k) to a Roth account, that conversion is permanent. Run the numbers before you convert. Income swings and market drops can both change the math after the fact.
The $24,500 Roth 401(k) limit and the $72,000 total plan limit are separate numbers. Maxing your regular contribution just means the after-tax space between those two limits is where the mega backdoor strategy operates. Check with your plan administrator, since not every employer plan allows after-tax contributions or in-plan conversions.
Roth conversions add to your adjusted gross income, and that income feeds into the formula that determines what portion of your Social Security benefit gets taxed. A conversion large enough to push more of your benefit into taxable territory can raise your tax bill beyond the conversion amount itself. This only matters in years you’re already collecting benefits.
