Rolling IRA into inactive Solo 401k | Ed Slott and Company, LLC

Rolling IRA into inactive Solo 401k

Client has a Solo 401k from when she was self employed in 2012. She is no longer self-employed.
She has $300k in a pre-tax rollover IRA.
Joint income is over $250k.
Can she roll the $300k into the Solo 401k, and then be eligible to make back-door roth contibutions? (ie, make annual after -tax contributions to a traditional IRA, then convert those contributions in full to a ROTH IRA).
Thank you!

Yes, as long as the solo K document permits incoming rollovers.

It's been ~5yrs since the original question was asked, so can anyone confirm if assets in a Solo K are counted when calculating the pro-rata rule in a 'back door' roth?Scenario:

  • wife: no traditional iras
  • husband (self-employed): $100k in pre-tax traditional ira, but if we roll this to a Solo K, would it still count?

The 401k balance does not count in determining the taxation of a Roth conversion. Note that line 6 of Form 8606 asks for the balance in certain plans only and they are all IRA plans, either TIRA, SEP IRA, or SIMPLE IRA. In addition, the assets of the non converting spouse are not a factor either as Form 8606 is an individual form holding only one SSN. In summary, all retirement assets of the non converting spouse are disregarded, and all Roth and non Roth IRA assets of the converting spouse are also disregarded. If you carefully follow the instructions for Form 8606, you will be fine.

Also be certain that the solo 401k is still a qualified plan. Does it have assets and is it currently up-to-date? If it was rolled to an IRA and a final Form 5500-EZ filed I don't think you can revive it. Also in order to have a qualified plan, you need an employer. I don't know how long it would be considered to be qualified if there is no employer associated with it.

  • The IRS consideres a sole proprietorship once established to continue until the death of the sole proprietor.
  • Section 401 explicitly considers an individual with earned income from self-employment in any prior year, even if there is no earned income in the intervening years, a self-employed individual eligible for a 401k.
  • Only the termination of a business entity that is the sponsor of the 401k requires the termination of the 401k plan.
 

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