Submitted by supersonic_528 t3_yhrn3v in personalfinance
I have a Solo 401K plan for my business. The plan has been in existence for 3 years. For each of these years, I have contributed pre-tax dollars to it. I have only made one after-tax 401K contribution (non-Roth) so far, and that was for the tax year 2021. Also, I never contributed anything to Roth 401K (although the Solo 401K plan I have from solo401k.com supports it). Now I'm trying to find out if I can do a Mega Backdoor Roth conversion on this after-tax 401K funds and move them to a Roth IRA account.
I have two main questions.
A. Can I convert the after-tax 401K directly to Roth IRA? Or do I have to first do after-tax 401K to Roth 401K, and then Roth 401K to Roth IRA? I'm guessing both are probably legal, but might have different tax implications.
B. Since I have money in pre-tax 401K too, do I have to pay any pro-rata tax in the process?
Full background:
The business mentioned above is just a side business, and I have a full-time job. So besides the above two 401K accounts (pre- and after-tax), which are from my business, I have the following retirement accounts.
- Employer 401K.
- A traditional IRA, which I fund every year with after-tax dollars only (I'm not eligible to contribute to pre-tax traditional IRA).
- Roth IRA. After I fund my traditional after-tax IRA (#2 above), I almost immediately do a backdoor conversion and convert the funds in traditional IRA to Roth IRA.
DeluxeXL t1_iufevex wrote
> Can I convert the after-tax 401K directly to Roth IRA? Or do I have to first do after-tax 401K to Roth 401K, and then Roth 401K to Roth IRA? I'm guessing both are probably legal, but might have different tax implications.
It will be called a rollover, not a conversion. But otherwise yes, you can move from after-tax 401k to Roth IRA.
> Since I have money in pre-tax 401K too, do I have to pay any pro-rata tax in the process?
No, but you have to deal with pro rata rule in the after-tax 401k alone. Your after-tax 401k account has
When you roll over from this account, both types of balances must go. You can roll over #1 to Roth IRA or Roth 401k, and #2 to the pretax account inside your 401k. Or, you can roll over both #1 and #2 to Roth IRA or Roth 401k, and pay tax on #2 if #2 is positive.