How To Set Up a Mega Backdoor Roth With Charles Schwab

Step 1: Verify Your Schwab 401(k) Plan Supports Both Gates

Unlike IRAs, Mega Backdoor Roth rules are controlled entirely by your employer's plan document. Check our crowdsourced List of 401(k) Benefits by Company or log into workplace.schwab.com and verify:

1. After-Tax Payroll Deferrals: Under Manage → Contributions, confirm there is a distinct percentage input labeled After-Tax (separate from Pre-Tax and Roth 401(k)).
2. Conversion Exit Path: Open your Summary Plan Description (SPD) under Plan Documents and confirm either In-Plan Roth Rollovers or In-Service Non-Hardship Withdrawals are enabled for after-tax money.

Step 2: Calculate Room & Set After-Tax Contributions

Run your paycheck numbers through our Mega Backdoor Roth Calculator first so you do not inadvertently crowd out any employer match dollars. For 2026, the total combined cap (under age 50) is $71,000.

Inside Manage → Contributions on Schwab Workplace, divide your remaining after-tax room across your remaining paychecks and set the After-Tax % carefully.

Step 3: Convert After-Tax Dollars Immediately

Leaving cash inside the After-Tax bucket allows investment earnings to grow—and those pre-conversion gains are taxed as Ordinary Income ? Ordinary Income Income taxed at your top marginal federal and state income tax bracket, unlike the tax-free growth earned once money sits inside the Roth bucket. when converted. Always automate or convert right away:

• Option A (Online Auto-Convert): If your Schwab plan displays an Automatic In-Plan Roth Conversion toggle on the Contributions or Rollover screen, enable it once. Every future after-tax paycheck converts cleanly on settlement.
• Option B (Phone Setup at 800-724-7526): If the toggle is absent online, call Schwab Workplace Financial Services at 800-724-7526. Ask the representative: "Can you please set up an automatic recurring in-plan Roth conversion for my after-tax 401(k) contributions, or verify my plan's manual rollover cadence?"

Step 4: Invest via Core Index Menu or Schwab PCRA

Many Schwab employer 401(k) plans feature a Schwab PCRA ? Schwab PCRA Personal Choice Retirement Account: a self-directed brokerage window linked inside select Schwab 401(k) plans giving access to broader ETFs and mutual funds. window. After your funds move to the Roth bucket, either invest in your core institutional S&P 500 index fund or sweep converted dollars into PCRA to mirror your broader portfolio. If your employer allows in-service rollovers to an external Roth IRA instead, check our Schwab Backdoor Roth IRA Guide for managing a personal Schwab Roth IRA cleanly.