Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

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GeraniumLover
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Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

Post by GeraniumLover »

I am 59 and just retired. I expect not to have any earned income in 2022 and beyond. I already completed a Backdoor Roth for 2021. I have a Solo 401k at Fidelity using their prototype plan, which supports only pretax contributions, for my sole proprietorship, which I have fully funded each year for the past several years, but not yet for 2021. I would like to increase my Roth holdings vis-a-vis my tax-deferred holdings.

I am considering using a service such as MySolo401k to reorganize my existing Solo 401 to add both a Roth and an After-Tax Contribution option (the latter to enable to Mega Backdoor Roth, or MBR). As I understand it, MySolo401k charges a $425 setup fee and a $125 annual fee. I would likely roll the entire thing into my IRAs (Traditional and Roth) and close the Solo 401k in early 2022.

I am wondering:
  • Whether it is worth the trouble and expense to do so, just to get another $64,500 into my Roth IRA?
  • Can I contribute the entire $64,500 as after-tax contributions for 2021, or would some of this need to be made as pretax or regular Roth contributions (employee deferrals, catchups, or employer profit sharing contributions)? I would prefer not to have to make pretax contributions since I will also likely be doing Roth conversions starting this year to help mitigate an eventual RMD cliff.
  • I understand there are other Solo 401k companies that provide third party administration, but that these have higher fees than MySolo401k. Given that I will be closing the Solo 401k in less than a year, would saving fees be a reasonable tradeoff to not having a third party administrator (I understand that I would need to administer the Solo 401k set up by MySolo401k, just as I have been with my Fidelity Solo 401k)?
Last edited by GeraniumLover on Wed Jul 21, 2021 1:10 pm, edited 5 times in total.
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retired@50
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR)?

Post by retired@50 »

I can't comment about what's best for self employed folks, but I'll say this...

You're 59, RMDs won't start until 72. Doesn't that give you a long runway to perform traditional to Roth conversions each year as needed?

Regards,
This is one person's opinion. Nothing more.
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GeraniumLover
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR)?

Post by GeraniumLover »

retired@50 wrote: Tue Jun 15, 2021 8:03 pm I can't comment about what's best for self employed folks, but I'll say this...

You're 59, RMDs won't start until 72. Doesn't that give you a long runway to perform traditional to Roth conversions each year as needed?

Regards,
I absolutely plan on doing Roth conversions. Beginning at 65, however, I may need to reduce these to minimize the effect of IRMAA (and before then, to maximize the ACA credits available). This just seemed like a great chance to beef up my Roth portfolio and take advantage of my final year of being able to contribute to a 401k.
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GeraniumLover
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

Post by GeraniumLover »

Bumping to see if anyone else can help answer my questions.
retiredjg
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

Post by retiredjg »

GeraniumLover wrote: Tue Jun 15, 2021 7:55 pmWhether it is worth the trouble and expense to do so, just to get another $64,500 into my Roth IRA?
It would not be worth it to me, especially since I know nothing about how to administer the plan. This is not the same as administering a vanilla plan.

You either have enough money to retire or you don't. I'm assuming you do. Getting this amount into Roth this year is not going to make a difference in your long term situation. Why take on the headache and the extra cost?
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GeraniumLover
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

Post by GeraniumLover »

retiredjg wrote: Wed Jul 21, 2021 3:18 pm
GeraniumLover wrote: Tue Jun 15, 2021 7:55 pmWhether it is worth the trouble and expense to do so, just to get another $64,500 into my Roth IRA?
It would not be worth it to me, especially since I know nothing about how to administer the plan. This is not the same as administering a vanilla plan.

You either have enough money to retire or you don't. I'm assuming you do. Getting this amount into Roth this year is not going to make a difference in your long term situation. Why take on the headache and the extra cost?
I have enough money to retire, but cannot pass up the opportunity to move $64.5k from taxable to tax-free. I had a good call with Mark Nolan from mysolo401k. I believe they provide more guidance and help to Solo 401(k) admins than Fidelity does, so I don't see the headache. I am pretty certain I will move ahead with this. 6.5K (>50 catchup) needs to be pre-tax or Roth, but the remaining $58k can be after-tax, quickly transferred to Roth IRA.
SuzBanyan
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Re: Just retired; should I redo Solo 401k to enable Mega Backdoor Roth (MBR) for just 1 year?

Post by SuzBanyan »

GeraniumLover wrote: Thu Jul 22, 2021 8:51 pm
retiredjg wrote: Wed Jul 21, 2021 3:18 pm
GeraniumLover wrote: Tue Jun 15, 2021 7:55 pmWhether it is worth the trouble and expense to do so, just to get another $64,500 into my Roth IRA?
It would not be worth it to me, especially since I know nothing about how to administer the plan. This is not the same as administering a vanilla plan.

You either have enough money to retire or you don't. I'm assuming you do. Getting this amount into Roth this year is not going to make a difference in your long term situation. Why take on the headache and the extra cost?
I have enough money to retire, but cannot pass up the opportunity to move $64.5k from taxable to tax-free. I had a good call with Mark Nolan from mysolo401k. I believe they provide more guidance and help to Solo 401(k) admins than Fidelity does, so I don't see the headache. I am pretty certain I will move ahead with this. 6.5K (>50 catchup) needs to be pre-tax or Roth, but the remaining $58k can be after-tax, quickly transferred to Roth IRA.
Just make sure you amend your current plan to move to a different provider. Don’t open a new plan.

Also note that you could amend to move to Vanguard or Schwab for no fee and put $26000 into a Roth 401k account. So the $550 initial fee plus $125 per year pays for the last $38,500. Plus some or all of the $38,500 (depending on business income) could be the employer contribution and give you a current year tax deduction. Run the numbers because maxing out TDA then doing a Roth conversion this year should cost about the same (less the $550 fee) and likely the Roth conversion next year would cost less due to lower income following retirement.
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