Solo 401K and MEGA Backdoor ROTH

I have question for MEGA BACKDOOR ROTH IRA. How does it work.
I am Self employed and from prior year I have SEP-IRA, Traditional IRA, Roth IRA, Solo-401K account.

Here is what I am trying to do. I want to contribute to MEGA BACKDOOR ROTH IRA. I am contributing max to tax-deferred Solo 401K. To contribute remaining amount (say 20K) upto 56K limit, what I should make sure.

1. Transfer existing SEP-IRA, Rollover IRA and Traditional IRA to Solo 401K to make aggregate value of all Traditional IRA to zero.
2. Contribute to Solo 401K (up to tax deferred limit)
3A. Contribute non deductible 20K to Solo 401K Roth
or
3B. Contribute 20K to Solo 401K and convert 20K to Individual Roth IRA.

Or let me know know if incorrect.

Thanks

795

Expert Alumni

Feb 29, 2020 10:11:13 AM

To have a Mega Back Door Roth IRA your retirement plan needs to have two components

Your 401k Plan Must Meet Specific Criteria To Do A Mega Backdoor Roth IRA

In order to do a Mega Backdoor Roth IRA, your 401k plan needs to offer:

After-Tax Contributions Above and Beyond the $19,500 Pre-Tax Contribution Limits
In Service Distributions Or Non-Hardship Withdrawals

If these two conditions are part of the retirement plan then you contribute to the 401K up to the limit for pre-tax contributions. Then contribute to the plan after-tax contributions up to the limit of 25% of your pre-tax income or $56,000 or if you are over 50 years old you can add another $6,000. Which ever is less.

Then you transfer the after-tax contributions to your Roth IRA account.

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Solo 401K and MEGA Backdoor ROTH