Please find the steps below to make Voluntary After-tax Solo 401k contributions and then transfers the funds to a Roth Solo 401k.
Step 1: Open the Voluntary After-Tax & Roth Solo 401k Holding Accounts
In order to make Mega Backdoor Roth Solo 401k Contributions, each Solo 401k participant will need separate bank or brokerage accounts for both Roth Solo 401k and Voluntary After-Tax Solo 401k funds.
For existing customers, we will help you open accounts at the bank or brokerage of your choice, please simply complete the following online form to direct us to do so:
- Please CLICK HERE, and enter the following password: Next23
How many accounts do I need if I will transfer voluntary after-tax Solo 401k funds to a Roth Solo 401k?
One Participant: If there is just one participant in the solo 401k plan, you should have opened at minimum two (2) accounts —a Roth solo 401k bank/brokerage account and a voluntary after-tax solo 401k bank/brokerage account– for the solo 401k.
Two Participants: If both participants (e.g., both spouses) are participating in the solo 401k and plan to make voluntary after-tax contributions and then convert them to the Roth solo 401k, then at minimum 4 (four) bank/brokerage accounts are required.
Step 2: Make the voluntary after-tax solo 401k contribution
The solo 401k voluntary after-tax must be applied to the specific holding account that was setup under the plan to hold the voluntary after-tax contributions before the contribution can be converted to the Roth Solo 401k. This is an important compliance step as the rules don’t allow to simply contribute to the funds to the Roth Solo 401k and then count it as a mega backdoor contribution.
Step 3: Convert/move the Solo voluntary after-tax contribution to the Roth Solo 401k
While the required IRS reporting is the same whether you used a bank vs a brokerage account to hold the voluntary after-tax solo 401k funds, the conversion/movement of the funds varies by financial institution.
Bank Account:
You will work with your bank in electronically moving/converting the funds from the Voluntary after-tax solo 401k bank account to the Roth solo 401k bank account.
Brokerage Account:
You will work with the brokerage in electronically moving/converting the funds from the Voluntary after-tax solo 401k brokerage account to the Roth solo 401k brokerage account.
Fidelity:
Schwab:
TD Ameritrade:
E*Trade:
Step 4: Fill Out On-Line Conversion Form to Report the Voluntary After-Tax Conversion to the IRS Using Form 1099-R
While the solo 401k voluntary after-tax conversion is not taxable, it is reportable to the IRS using Form 1099-R.
My Solo 401k Financial preforms this required reporting for its clients who timely request it.
To the Roth Solo 401k: If you converted the voluntary after-tax solo 401k funds to the Roth Solo 401k, CLICK HERE to fill out the online conversion form
