While the Secure Act 2.0 does allow for employer profit sharing (Nonelective) contributions to be made as Roth Solo 401k contributions, for a plan like our Solo 401k plan that allows for Mega Backdoor Roth Solo 401k contributions there is no substantive advantage to making Employer (Nonelective) Solo 401k contributions as Roth Solo 401k contributions:
- Voluntary After-tax Solo 401k Contributions can be made at a higher percentage of self-employment income (i.e., 100% of self-employment compensation subject to the overall limit) compared to Employer (Nonelective) Contributions made as Roth Solo 401k contributions (e.g. 25% of w-2 wages for a self-employed business taxed as an S-corp, etc.).
- The deadline to establish a Solo 401k plan in order to make both Employer (Nonelective) and Voluntary After-Tax Contributions is the same: the plan must simply be established in time to make contributions by the business tax return deadline including any timely filed extension.
- Voluntary after-tax contributions may be transferred to a Roth IRA whereas Employer Contributions may not be transferred out of the Solo 401k to a Roth IRA until a “triggering event” has been met (e.g. the attainment of age 59 ½).
For more on making Mega Backdoor Roth Solo 401k contributions:
- https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/
- Mega Backdoor Roth Solo 401k (Transfer to Roth IRA)
- Mega Backdoor Roth Solo 401k (In-Plan Roth 401k Conversion)
- Please find a recording of a recent webinar regarding a Solo 401k contribution deep dive guide for self-employed businesses taxed as an S-corporation at the following link: ://www.mysolo401k.net/corporation-calculating-solo-401k-contributions-corporation/
