Solo 401k Mega Backdoor Roth Conversion Destinations

When executing a Solo 401k Mega Backdoor Roth Conversion, you can choose either a Solo 401k Roth account or a Roth IRA as the ultimate destination for the converted after-tax funds.

Because of the potential complexity and the potential need to calculate and remit taxes, we recommend checking with your accountant or other tax professional prior to executing a conversion.

You should pick the destination where you ultimately want the funds to end up.

• Choose a Roth IRA if you want to invest the funds from a Roth IRA. This can offer the most flexibility, as it will not be tied to your Solo 401k or business. However, once funds are in a Roth IRA, they cannot be moved back to a 401k (Solo or otherwise).

• Choose a Solo 401k Roth account if you want to invest the funds from your Solo 401k. This will give you access to Solo 401k features like participant loans. However, once funds are in your Solo 401k Roth account, you may not be able to move them to a Roth IRA for a number of years.

As a reminder, any interest or capital gains on the Solo 401k After-Tax funds before they are converted to Solo 401k Roth or Roth IRA funds must be handled separately. If moving to a Solo 401k Roth, you can pay taxes on the interest or gains on a pro-rata basis at the time of conversion. If moving to a Roth IRA, the interest or gains must be moved on a pro-rata basis to a Traditional IRA.