Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.
Self-employed 401k FAQ – How to upgrade Fidelity Solo 401k to Mega Backdoor Roth Solo 401k?
QUESTION:
I have a solo 401(k) through Fidelity that I set up a couple of years ago and I’m interested in doing a Mega backdoor Roth contribution. What will it take to move from what I have set up to a solo 401k plan through you guys to do this?
RESPONSE:
Great question as we help clients every day convert existing basic Solo 401k plans (e.g. at Fidelity, Schwab, TD, etc.) to our plan to take advantage of the services and features of our Solo 401k plan such as the ability to make Mega Backdoor Roth Solo 401k contributions.
The process to do so is called a restatement. It is helpful to understand that a solo 401(k) is a legal entity in that a solo 401k is a retirement trust. Like any legal entity, a Solo 401k plan consists of the Solo 401k plan documents. When one restates a Solo 401k plan at Fidelity, one is replacing Fidelity’s solo 401k plan documents (which don’t allow for Mega Backdoor Roth Solo 401k contributions, etc.) with our Solo 401k plan documents which do allow for Mega Backdoor Roth Solo 401k contributions, alternative investments, solo 401k participant loans, etc.
As part of the restatement process, new accounts (one for Pre-tax, a second for Roth and a third for Voluntary After-tax) will need to be set up. As part of our onboarding process, we prepare the paperwork to open accounts at the bank or brokerage of choice (note: the new accounts may be set up at Fidelity). We will then prepare the paperwork to transfer the cash and investments from the existing pre-tax account to the new pre-tax sub-account for the restated solo 401k plan.
Once the new accounts are opened, the solo 401k participant/owner may make Mega Backdoor Roth contributions to the new accounts.
To learn more, please see Mega Backdoor Roth Solo 401k (In-Plan Roth 401k Conversion)
