Author Topic: Anyone Execute a mega backdoor roth in solo 401k ?  (Read 1668 times)

DavidAnnArbor

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Anyone Execute a mega backdoor roth in solo 401k ?
« on: June 22, 2017, 12:13:44 AM »
I understand that the solo 401k plan documents for Vanguard, Fidelity, and others don't allow for the steps needed to undertake a mega backdoor roth
  • non-deductible employee contributions to the 401k plan
  • in-service distributions for non hardship reasons into a roth

Has anyone tried the method of Harry Sit who used the prototype plan of Ascensus to administer his own solo 401k plan ?  This prototype enables him to do the above so that he can execute the mega backdoor roth.

https://thefinancebuff.com/executing-mega-backdoor-roth-in-solo-401k.html#comment-21097

protostache

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #1 on: June 23, 2017, 09:00:22 AM »
I've done it. My business's solo 401k is through MySolo401K.net. Annoying business name but Mark Nolan, the guy who runs it, has been super helpful answering all of my questions. The process is basically the same as Harry's post except it's a bit cheaper.

All of my 401K accounts are at Fidelity, so I opened a new Fidelity Investment Only account and nicknamed it "After-tax" with an initial deposit. I also opened a new Fidelity Roth IRA. After the initial deposit cleared I sent in the withdrawal form and told them to transfer the balance into my Roth IRA but keep the account open. Future contributions follow the same pattern: make deposit then send in the withdrawal form.

Really straightforward from a mechanical standpoint. Mark will take care of the 1099-R at the end of the year as part of their yearly fee, so all I really have to do is remember to tell my accountant about it so they can file the right forms at tax time.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #2 on: June 24, 2017, 10:07:47 PM »
Thank you I really appreciate it.
I see the fee for the first year is $795, and then it's $125 per year thereafter.  Kind of pricey upfront. The yearly fee after that is cheaper than the company Harry Sit uses, which charges $195 per year.

I already contributed money for the 2017 year as the employee to my Fidelity solo 401k. I wonder if I still can use MySolo401k.net for 2017 ?
I think this year I could easily contribute $9 - $10K in after tax contributions.
« Last Edit: June 24, 2017, 10:12:23 PM by DavidAnnArbor »

protostache

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #3 on: June 25, 2017, 05:22:22 AM »
I don't see why you couldn't. You would need to inform Mark about the old plan and then at some point have Fidelity roll the money into accounts that you're trustee for, but it should be straightforward and not particularly time sensitive.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #4 on: June 25, 2017, 11:43:40 AM »
That would really be swell as I will definitely have decent business income this year and could really take advantage of doing non-deductible contributions  to the solo 401k (above and beyond the deductible employee and employer contributions).


DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #5 on: June 28, 2017, 09:34:52 AM »
So the forum on this question brings together a few of the owners of these solo 401k providers to answer a question from a prospective client.

https://www.biggerpockets.com/forums/51/topics/364326-self-directed-solo-401k-setup-question

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #6 on: July 04, 2017, 08:51:46 PM »
Right now I'm tied between discountsolo401k.com and mysolo401k.net

Discount is a little bit cheaper. Mysolo401k seems more polished on their website. Not sure who to go with.

protostache

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #7 on: July 05, 2017, 04:43:45 AM »
I would send some questions to both and see how they respond. Customer service is important with these things.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #8 on: July 05, 2017, 02:08:02 PM »
I was confused at first about the 1099-R that would need to be filed. But as it turns out according to Justin at discountsolo401k " the 1099 will be due the year after the conversion is actually made.
For example, you could determine your income for 2017, make the after-tax contributions for 2017 in 2018, make the conversion/transfer to Roth in 2018, and then the 1099-R for the 2018 transfer will be due is 2019."

This was revelatory for me, cause I thought I would somehow have to file a 1099 for  the after-tax contribution conversion/transfer in 2018.

Vilgan

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #9 on: July 11, 2017, 06:06:39 PM »
I do the mega backdoor roth on my own. I didn't find creating a 1099-R to be terribly difficult, so my main cost was just setup. I send a check off every month for the after tax contribution then periodically send in the form to Fidelity to roll it over to my Roth IRA. This has been relatively painless, the main issue was just getting everything set up and signing the "do it legit" forms etc.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #10 on: July 11, 2017, 07:01:10 PM »
Which company did you use and how much did it cost you?

Vilgan

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #11 on: July 19, 2017, 10:45:54 AM »
The same woman Harry Sit mentions in his article that isn't Ascensus.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #12 on: July 19, 2017, 12:50:09 PM »
Oh ok. I need to look up her price again. I thought she was kind of expensive

Discountsolo was about $500 the first year, and $100 each year thereafter.

I am wondering if I can do one of these companies for just a couple of years and then revert back to my regular solo 401k plan with Fidelity. I think I only have about 2 years of heavy work left in me.

protostache

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #13 on: July 19, 2017, 01:38:32 PM »
Oh ok. I need to look up her price again. I thought she was kind of expensive

Discountsolo was about $500 the first year, and $100 each year thereafter.

I am wondering if I can do one of these companies for just a couple of years and then revert back to my regular solo 401k plan with Fidelity. I think I only have about 2 years of heavy work left in me.

Yes, that's fine. You can amend or replace your plan at any time. The IRS frowns on cancelling it outright before 5 years, especially if you cancel it immediately prior to hiring employees. 401(k)s are supposed to be permanent plans.