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Should Your Retirement Plan Offer In-Plan Roth Conversions or Voluntary After-Tax Contributions?
Last Updated: July 16, 2026
Retirement plans have changed considerably over the last decade. New contribution options, Roth features, automatic enrollment provisions, and other design enhancements continue to give employers more ways to tailor their plans to their workforce.
Recently, we have received several questions from plan sponsors about In-Plan Roth Conversions and Voluntary After-Tax Contributions. While these features can create valuable opportunities for certain participants, they are not necessarily the right fit for every retirement plan.
For employers evaluating whether to add these provisions, the key question is not whether the feature exists, but whether it meaningfully benefits the plan and the participants who are likely to use it.
Understanding the Features
✅Voluntary After-Tax Contributions
Voluntary after-tax contributions allow participants to contribute employee after-tax dollars to the retirement plan in addition to their regular pre-tax or Roth elective deferrals. These contributions are generally used only after a participant has already maximized the standard elective deferral limit.
One reason these contributions receive attention is that they can serve as the foundation for a strategy commonly referred to as a Mega Backdoor Roth, which involves moving after-tax dollars into Roth status.
✅In-Plan Roth Conversions
In-Plan Roth Conversions allow participants to convert eligible non-Roth balances into Roth money while keeping the assets inside the plan.
The converted amount may come from pre-tax sources or voluntary after-tax sources. When pre-tax money is converted, the participant generally recognizes taxable income in the year of the conversion.
Why Are Employers Asking About These Features?
Industry interest in Roth-related plan features has increased in recent years. According to Vanguard’s How America Saves 2025 report, approximately 36% of plans offer In-Plan Roth Conversions. However, only about 3% of participants in those plans actually use the feature.
That utilization rate highlights an important point: these features tend to be niche planning tools rather than broadly used participant benefits. In many organizations, the primary users are higher-income employees, executives, or participants who have already maximized other retirement savings opportunities.
This Is a Plan Sponsor Decision
One area that often causes confusion is the distinction between plan sponsor decisions and fiduciary decisions.
Whether to add In-Plan Roth Conversions or Voluntary After-Tax Contributions is generally a settlor (employer) decision, not a fiduciary decision under ERISA. Employers have the discretion to determine which optional plan features to include in their retirement plan.
That said, employers should still evaluate these features carefully. Even though the decision falls outside the fiduciary scope, it can create meaningful tax, compliance, communication, and administrative considerations for the plan and its participants.
Important Considerations Before Adding These Features
1️⃣ Participant Demand
Before adding either feature, employers should consider who is actually requesting it and how many participants are likely to benefit.
In many cases, interest comes from a relatively small group of employees who are already contributing at high levels and are looking for additional tax-advantaged savings opportunities.
For some organizations, that may be a compelling reason to add the feature. For others, the expected utilization may be too limited to justify the additional complexity.
2️⃣ Participant Understanding
This is often the most significant concern.
The distinction between pre-tax, Roth, and after-tax contributions is not always intuitive. A participant who converts pre-tax money to Roth may create a substantial tax liability without fully understanding the consequences.
In many cases, taxes cannot be withheld directly from the converted amount, which means participants may face an unexpected tax bill at year-end if they have not planned appropriately.
Even when disclosures are provided, employers should recognize that some participants may not fully understand the financial implications of a conversion.
3️⃣ Compliance Considerations
Voluntary after-tax contributions can introduce nondiscrimination testing considerations.
Specifically, after-tax employee contributions are generally included in ACP (Actual Contribution Percentage) testing. If the feature is used primarily by highly compensated employees, the plan could fail testing and require corrective action.
For that reason, voluntary after-tax contributions are often more practical in plans where testing concerns are minimal.
4️⃣ Administrative Capabilities
From an operational standpoint, most major recordkeepers are already capable of administering these features when the plan document permits them.
For many employers, the greater challenge is not the mechanics of administration, but communicating the feature effectively and helping participants understand how it works.
Where the Mega Backdoor Roth Fits In
Many employers hear about these features because participants have asked about the Mega Backdoor Roth strategy. Generally, this strategy requires:
• The ability to make Voluntary After-Tax Contributions, and
• A mechanism to move those dollars into Roth status, either through an In-Plan Roth Conversion or an eligible rollover.
While the strategy can be beneficial for certain high-income participants, it is not typically a feature used by the average employee and often requires a relatively sophisticated understanding of retirement contribution rules and tax planning.
Questions Employers Should Ask
Before adding In-Plan Roth Conversions or Voluntary After-Tax Contributions, employers may want to ask:
• Who is requesting this feature?
• How many participants are likely to use it?
• Do participants understand the tax implications?
• Could this create additional ACP testing challenges?
• Does the value provided outweigh the added complexity?
• Are we prepared to communicate how the feature works and when participants should seek tax advice?
Should Your Retirement Plan Offer These Features?
In-Plan Roth Conversions and Voluntary After-Tax Contributions can provide meaningful planning opportunities for certain participants, particularly those with more complex financial situations or a higher capacity to save.
At the same time, they introduce additional tax, compliance, and communication considerations that may limit their value for many plans.
Rather than asking whether these features are becoming more common, employers should evaluate whether they align with their workforce, plan objectives, and administrative capabilities. The best plan design decisions are those that reflect the needs of the organization and its employees—not simply the availability of a particular feature.
For some plans, these features may offer valuable flexibility for a small group of participants. For others, the added complexity and potential for participant misunderstanding may outweigh the benefit. The right answer depends on the specific goals and characteristics of the plan and the workforce it serves.
