Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily Solo 401k FAQs.
QUESTION: I have a Roth IRA at Fidelity. If I make mega backdoor contributions to the Solo 401k, will that impact my solo 401k since I already have a Roth IRA?
It will not as you can have both a Roth IRA and a Solo 401k plan.
There’s nothing about having a solo 401(k) that would prevent you from maintaining a Roth IRA or vice versa.
What some solo 401k owners do is make a mega backdoor Roth solo 401(k) contribution to their Solo 401k plan and then transfer the funds to a Roth IRA.
Mega Backdoor Roth Solo 401k is really the industry terminology or jargon for what is technically a voluntary after-tax contribution.
In order to execute such a transfer, an eligible small business owner (i.e. self-employed individual with no non-owner/non-spouse full-time w-2 employees) would need to set up a Solo 401k plan through a provider (like us) that offers a Solo 401k plan that allows for voluntary after-tax contribution as well as in-service distribution/rollover of such voluntary after-tax funds.
For example, we help our clients set up the required separate voluntary after-tax subaccount (e.g. at the bank or brokerage of their choice) as well as handle the preparation and submission of the required 1099-R to report the subsequent transfer of such voluntary after-tax funds to either a Roth Solo 401k or Roth IRA.
