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Mega backdoor Roth contributions
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1 Reply
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Hello Team
I recently opened a mega backdoor Roth account. Just wondering if I am splitting the contributions correctly. Below is the split:
Employee salary deferral: $ 20,500 in 2022
Employer contribution: 20% of business profits
PRE-TAX account: 20% employer contribution + $10,500 pre-tax. All contributions made from by business bank account.
ROTH account: $10,000 after tax contribution (20500-10500 pre-tax contribution). All contributions made from my personal bank account.
VOLANTARY AFTER TAX account: 5K after-tax (remaining after tax contributions until $60K). All contributions made from my personal bank account.
Best Regards
Gowtham
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Thanks for your post!
Making Mega Backdoor Roth Solo 401k contributions is one of the top reasons that clients open accounts with us.
First, please note that for a self-employed business taxed as a solo proprietor the ability to contribute to the plan is based on self-employment compensation (i.e lilne 31 of Schedule C less one-half of the self-employment tax).
Of that amount, one may contribute 100% of self-employment compensation up to $20,500 as an employee contribution (and an additional $6500 if one is 50 or older) provided that one is not making contributions to another retirement plan such as a “day job” 401k plan. Employee contributions may be contributed as Pre-tax and/or Roth 401k contributions.
The employer contribution limit is 20% of self-employment compensation (provided that the sum of all Solo 401k contributions doesn’t exceed the overall limit (e.g. $61k for 2022)) and must be made as a pre-tax contribution.
The voluntary after-tax contribution limit is 100% of self-employment compensation not to exceed the overall limit (e.g. $61k for 2022) reduced by any other employee or employer contributions made to the Solo 401k.
Given the above and with respect to your post below, please note that Roth Solo 401k contributions are contributed into a Roth Solo 401k sub-account whereas Voluntary after-tax contributions are contributed into a separate voluntary after-tax sub-account.
