How to Calculate Mega Backdoor Roth Contributions for a Sole Proprietor

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You’re probably aware of how great mega back door Roth’s are. But do you know how to calculate mega back door Roth contributions for a sole proprietor?

This article will walk through the calculation and give you some insights to simplify the process.

A couple handy forms for your reference:

Schedule SE. This schedule will calculate the self-employment tax for the Schedule C business profits. You can find it here:

IRS calculations from the IRS site:

IRS Retirement Calculator Guide: Self-Employed Individuals – Calculating Your Own Retirement-Plan Contribution and Deduction | Internal Revenue Service (

IRS Publication 560: Publication 560 (2021), Retirement Plans for Small Business | Internal Revenue Service (

Mega Components

First of all, Mega Backdoor Roths are combined generally with three types of contributions:

  1. Employee deferral
  2. Profit sharing
  3. After-tax contributions

The combined amount of the above items cannot exceed the annual 401(k) limit. The limits for 2022 and 2023 are as follows:

Under age 50$61,000$66,000
50 and over$67,500$73,500

Mega Backdoor Roth Calculation Example

Let’s look at an example with the following assumptions:

Plan year2022
Client Age40
Sole proprietor net income$90,000

Determine Employee Deferral

Under age 50$20,500$22,500
50 and over$27,000$30,000

Calculate self-employment tax

Once you know the basic plan assumptions, the first step is to calculate self-employment tax. This is actually done using Schedule SE noted above. Most CPAs have software that calculates this, so it is not really a manual process.

But the self-employment tax calculation is not that challenging. Most people know that it is approximately 15%, but there are a couple adjustments.

First, take the net income of $90,000 and multiply it by 92.35%. This calculation reduces for one-half of self-employment tax (7.65%). The result of this calculation is $83,115. Then you multiply this amount by 15.3%. The resulting self-employment tax is $12,716.

Calculate Profit Sharing Contribution

There is a specific computation to determine the maximum amount of elective deferrals and profit-sharing contributions you can make. When determining the contribution level, your compensation is actually “earned income,” which the IRS defines as net self-employment earnings once you deduct both:

  • one-half of self-employment tax, and
  • contributions for yourself.
Sole proprietor net income$90,000
Less: 1/2 SE tax ($6,358)
Net profit reduced by ½ SE tax $83,642

Final Results

Paul Sundin

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