Mega Backdoor Roth IRA

The goal of this post is to walk through the steps involved in a Mega Backdoor Roth. 

The maximum 401(k) contribution for 2025 is as follows:

  • $70,000 or
  • $77,500 if you are 50 years of age or older.

In order to take advantage of this strategy, the client must meet the following conditions:

  • The solo 401(k) plan must allow for after-tax contributions.
  • There can be NO eligible employees (other than owner and spouse).
  • There must be enough earned income or “deemed” compensation from the self-employment to allow the after-tax contributions.
  • The 401(k) plan is required to allow “in-plan” Roth conversions.

Here are the steps involved:

1) Calculate the client contribution

Prepare a client illustration (or just email) the client the contributions. This would include:

  • Pre-tax (or Roth) employee contributions
  • Profit sharing contributions (don’t forget the 6% limit)
  • After-tax contributions

Confirm with client that all contributions were made (remember they are elective).

2) Confirm that brokerage accounts are open and disburse funds

Open up brokerage or bank accounts under the name of the 401k trust. There should be one account that is labeled “Pre-tax” and one account that is labeled “Roth”.

For the “after-tax” portion, write a check or wire the funds out to the Roth brokerage account.

3) Complete the required conversion form

Complete and sign the election form that will document the conversion of the after-tax contribution to the Roth account. This form should be completed and signed by the company for each year that a conversion is made. It should be retained by the company and a copy should be forwarded to Emparion.

A copy of the form is attached here:

Election-form-for-in-plan-roth-conversionDownload

4) Issue a 1099-R at year end

Here is the 1099-R form for reference. Make sure it is updated for the correct year.

https://www.irs.gov/pub/irs-pdf/f1099r.pdf

Let’s assume that Robert Jones with the ABC Company made the following contributions for himself.

  • Employee deferral = $23,500
  • Profit sharing = $18,500
  • After-tax contribution = $28,500
  • TOTAL CONTRIBUTION = $70,000

Assuming the client rolled the money out of the 401(k) and into a Roth IRA, the 1099-R should be issued for the after-tax contribution only. There is no 1099-R issued for the contribution of any funds just the conversion/rollover of the after-tax funds.

Emparion, LLC does not provide legal, investment or tax advice. The information herein is general and educational in nature and should not be considered legal or tax advice. Tax laws and regulations are complex and subject to change, which can materially impact financial results. Emparion cannot guarantee that the information herein is accurate, complete, or timely. Emparion makes no warranties with regard to such information or results obtained by its use, and disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Please consult an attorney or tax professional regarding your specific situation.