The Mega Backdoor Roth IRA Strategy and Solo 401(k) Plans
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Ed Slott


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The Mega Backdoor Roth IRA Strategy and Solo 401(k) Plans

Ian Berger, JD
IRA Analyst

By Ian Berger, JD

In the August 16, 2021 Slott Report, we showed that someone participating in a 401(k) plan through a “regular” job could also establish a solo 401(k) plan through a side job and contribute significant funds this year in after-tax contributions to the solo plan. However, this only works if the company sponsoring the regular 401(k) plan and the entity sponsoring the solo 401(k) (e.g., a sole proprietor) are considered unrelated under IRS rules.



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AARP

HOW TO CONVERT RETIREMENT SAVINGS FROM A 401(K) INTO A ROTH IRA

By Ed Slott, CPA

Every month, IRA Expert Ed Slott is taking your questions about Individual Retirement Accounts on AARP:

I have a 401(k) with a company I retired from this year. Can I convert those funds to my Roth IRA? I don't want to convert all the funds because the tax bill would be too much. Can I convert just a part of the funds to my Roth IRA and then roll the rest of my 401(k) funds to my traditional IRA?

Yes, the tax law allows funds in a company retirement plan such as your 401(k) to be converted to your Roth IRA.

Assuming you are eligible to move the funds out of your 401(k), you should first ask the company if it will allow you to do two separate direct rollovers. One would be from the 401(k) to your traditional IRA. That rollover will be tax-free.

The other direct rollover would be for the remaining funds you want to convert to your Roth IRA. That direct rollover would be a taxable Roth conversion.



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Mailbag


Q: My client recently passed away at the age of 86 and the beneficiaries were his twin grandchildren who are six years old. Does their 10-year clock to withdraw the funds start right away, or can they wait until they are 18 years old to start their 10-year clock to withdraw the funds?

Answer

Q: Can you do a Qualified Charitable Distribution (QCD) to a donor advised fund?

Answer

Q: My wife and I recently watched your interview on Morningstar and you introduced the “Mega QCD.” Both my wife and I are currently at age 69, so we are not eligible for a QCD this year. However, it seems like we are qualified to make a “Mega QCD” contribution in 2021. We would like to use our IRA money to make charitable contributions. We have questions on how to report the “Mega QCD” on our tax form. Hopefully, you can help us to clarify.

Answer

Q: I opened a Roth IRA in 2021 with a $7,000 contribution. Where will I report this when I file my taxes?

Answer

Q: I read of a way to move money from an IRA to a Roth without incurring any taxes. You set up an IRA account and make a non-deductible contribution of $6,000, then you convert it into a Roth. Is this legal and possible?

Answer

Q: Can you put funds into a Roth IRA for a 14 year old using money you have paid the child for doing chores?Client was told all he needed to do was keep a record of what was paid by to the child.

Answer

Have a question for America's IRA Experts?
Email your questions to us at mailbag@irahelp.com. Selected questions will be featured every Thursday in the Slott Report.



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