Can someone explain how a megabackdoor roth works?

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Your employer 401k plan needs to allow for it. Mine does through fidelity. Essentially with a traditional 401k and Roth 401k, the max contribution limits are set to 19.5 k annually (including employer match). If the plan allows for it (and you can confirm by calling your 401k provider), they will set up an auto conversion for anything above 19.5, all the way up to 58.5k, to Roth immediately. Making the earnings on these post tax contributions tax free.

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Isn’t there an income limit?

You contribute post tax to your employer 401k. You then do a non-hardship in-service withdraw to Rollover your post tax contributions to your Roth IRA.

If you have any gains on the after tax contributions, those get rolled into a Traditional IRA (and then you can convert that Traditional IRA balance to your Roth IRA).

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