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Do you have lofty dreams of contributing way more than the Roth IRA ($7,000 for 2024) or even the Roth Employee Contribution Limits ($23,000 for 2024) to supercharge your retirement nest egg held in a Roth account? As a self-employed business owner, you hold the keys to unlocking a Mega Backdoor Roth Solo 401k through which you could potentially contribute up to $69,000 ($76,500 if over age 50) for 2024.
Here’s what you need to know:
Eligibility Rules
To be eligible to maximize voluntary after-tax contributions to a solo 401k plan, you must:
- Have enough earned income from your self-employed business to make large after-tax contributions
- Have a solo 401k plan that specifically allows voluntary after-tax contributions with in-plan conversions (i.e. Mega Backdoor Roth Solo 401k contributions)
Contribution Limits
The maximum you can contribute via voluntary after-tax solo 401k contributions is the lesser of:
- 100% of your self-employment compensation
- The overall solo 401k limits – $69,000 for 2024 ($76,500 if over age 50 plus)
So if you earn at least $69,000 ($76,500 if over age 50 plus) of self-employment income for 2024, you could potentially contribute the entire $69,000 ($76,500 if over age 50 plus) as an after-tax solo 401k contribution and then transfer the funds to a Roth Solo 401k or Roth IRA where they have the chance to grow tax-free.
Hypothetical Example
Let’s assume that Jane who is under 50 years of age expects her self-employed business which is taxed as an S-corporation to generate $100,000 of net income in 2024.
As long as she receives at least $69,000 in w-2 wages from her self-employed business taxed as an S-corp (and she has a plan like our plan that supports Mega Backdoor Roth Solo 401k contributions), she can contribute $69,000 as a voluntary after-tax solo 401k contribution and then transfer the funds to a Roth Solo 401k or Roth IRA where they have the chance to grow tax-free!
Key Takeaways
The backdoor solo 401k strategy allows motivated self-employed individuals to make mega contributions to quickly grow their Roth account and help secure their retirement future. Just make sure your solo 401k provider supports Mega Backdoor Roth Solo 401k contributions.
