The idiosyncrasies of Mega Back Door

[toniteisthenight]

Hi all!

I'm hoping you guys can help guide me along your path...

I am a full time employee and also have a side business trying to hustle a buck. I have a Roth IRA, a rollover IRA from old employer's 401k, a 401k under my current employer, and a solo401k of which I am the named employer, participant, trustee, and administer. I followed TheFinanceBuff's lead here: https://thefinancebuff.com/executing-mega-backdoor-roth-in-solo-401k.html

My question is about ProRata. My solo401k has pre-tax money in it already. If I contribute after tax (with the intent of backdoor), am I able to rollover only the after tax portion? How do you guys manage to do the mega back door w/o touching the pretax money? Maybe I need ANOTHER solo401k that is empty most of the year, only to serve as a temporary parking post for backdoor?

Thanks!

[seattlecyclone]

I think pro-rata concerns depend on how the actual 401(k) plan document is written. If the plan is structured so that after-tax contributions go into a legally separate sub-account from the pre-tax contributions, that's ideal for the mega backdoor Roth. Don't ask me what verbiage to add to your 401(k) plan document to make sure this is the case; I have no idea.

However even if your plan does put all the money in the same pot, it seems like you could rely on IRS Notice 2014-54 to remove all the money from the 401(k), putting pre-tax balances in a traditional IRA and post-tax balances in a Roth IRA.

[toniteisthenight]

Thanks for the great link - I look forward to reviewing that tonight.

Funny, I'm in Seattle too!