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Mega-Backdoor Roth in a Solo 401(k): Step-by-Step Playbook

  • Writer: Gustaf Rounick, CFP®, ChFC®
    Gustaf Rounick, CFP®, ChFC®
  • Jul 29
  • 7 min read

Updated: Aug 22


Hero graphic showing 401(k) document flowing into a Roth IRA coin, with calculator and calendar icons, illustrating the Mega-Backdoor Roth rollover.

Introduction

If you’re a solo advisor who’s already squeezed every dollar into the standard 401(k) limits, you’ve probably felt the sting of “why can’t I save more?” You hit the $23,500 elective-deferral cap for 2025, maybe tack on a $7,500 catch-up if you’re over 50, and then… nothing. Meanwhile, your peers at the big firms are quietly dumping six-figure sums into Roth buckets, compounding tax-free for decades.


That ends now. The Mega-Backdoor Roth is a little-known hack that allows you to funnel AFTER-tax contributions into your Solo 401(k) up to the IRS’s $ 70,000 annual contribution limit, then convert them into Roth dollars—no taxable gains in sight. It’s the same legal strategy Fortune 500 CFOs use, repackaged for one-person practices.


Follow this playbook, tick off each item on the PDF checklist, and you’ll be harvesting serious tax-free growth without hiring an army of ERISA attorneys. Ready to stretch your 2025 contributions from ~$30k to north of $70k?


1. Confirm Your Plan Allows It

Before making after-tax contributions, ensure your Solo 401(k) plan actually permits both the extra bucket and in-plan Roth conversion. Skipping this step is like driving a Ferrari on a learner’s permit—sure, you’ve got the horsepower, but without the proper clearance, you’ll trigger paperwork headaches and compliance misfires.


  1. Check your plan document. Most Solo 401(k) plans default to only pre-tax and Roth 402(g) buckets. You need explicit language permitting after-tax contributions and in-plan Roth conversions (if you want to keep the funds inside your plan).

  2. Call your provider. If the document isn’t crystal clear, ring your administrator. Ask:

    • “Does my Solo 401(k) support after-tax contributions?”

    • “Can I convert after-tax dollars to Roth within the plan, or only via IRA rollover?”

  3. File an amendment if needed. Plan sponsors typically allow a fast-track amendment to add the necessary sub-accounts.

  4. CTA: Download the Mega-Backdoor Roth checklist to ensure you’ve covered every compliance angle.


Why this matters: If your plan can’t handle after-tax buckets or conversions, you’ll end up chasing paperwork and IRS letters, defeating the simplicity you signed up for.


2. Max Out Your Elective Deferral

Locking in the full $23,500 deferral (plus any catch-up if you’re over 50) isn’t optional—it’s the foundation of the Mega-Backdoor strategy. If you leave this on the table, you drastically shrink the headroom for after-tax contributions, and you lose out on the most efficient layer of tax shelter available.


  1. Elective (pre-tax) limit: $23,500 for 2025; if you’re 50+, tack on a $7,500 catch-up (age 60–63 special catch-up is $11,250).

  2. Roth 401(k) elections: Decide whether to split your $23,500 between pre-tax and Roth 401(k). Neither choice affects the Mega-Backdoor sequence, but it changes your current vs. future tax balance.

  3. Payroll setup: Update your payroll elections now to hit the full $23,500 by December—no surprises in Q4.

  4. Monitor quarterly. Set a calendar reminder to confirm your deferrals are on track.

Download the checklist to see sample payroll-election wording and mitigation steps if you’re off pace.

Real-world example:

  • Solo advisor makes $150k W-2 net comp.

  • Elects $23,500 pre-tax deferral by spreading $1,958/pay period over 12 months.


3. Allocate to take advantage of it, Employer Profit-Sharing

You’re eligible to deposit up to 25% of your net compensation as an employer contribution, and failing to take advantage of it is like walking past a stack of gold bars because you didn’t bring a cart. Nail down this chunk first so you know exactly how much residual space remains for your after-tax plays.


  1. Employer cap: Up to 25% of net compensation (for S-corp owners, net comp = Box 1 wages); subject to the $350k IRS compensation cap.

  2. Calculate your slice: On a $150,000 compensation, 25% equals $37,500.

  3. Combined so far:

    • Employee deferral: $23,500

    • Profit-sharing: $37,500

    • Total: $61,000

  4. Payroll feed: Automate the profit-sharing deposit as a lump sum or pro-rata each pay period—whatever your payroll vendor supports.

Tip: If you also employ your spouse, you can contribute based on their comp, too, doubling the first two buckets.

4. Determine After-Tax Capacity

Crunch the numbers: take the $70,000 total 2025 addition limit, subtract your elective deferrals and profit-sharing, and voilà, your after-tax budget. Skipping this math leads to surprise excesses or wasted headroom, both of which cost you real dollars.


  1. Annual addition limit: $70,000 total for 2025 (employee + employer + after-tax).

  2. Subtract what you’ve used: $70,000 – $61,000 = $9,000

  3. Goal: Make $9,000 in after-tax contributions via payroll deduction.

  4. Catch-up room if 50+: Your $7,500 catch-up is additive—so a 50+ advisor could push total contributions to $77,500, leaving $16,000 for after-tax.

Pro-tip: Run the math on a spreadsheet you update each quarter. Use our checklist’s sample template to simplify the formula.

5. Execute After-Tax Payroll Withholding

Setting up “Solo 401(k) After-Tax” deductions in payroll isn’t glamorous, but it’s non-negotiable. Divide your calculated after-tax cap over your pay periods and monitor it closely; one mis-coded entry and the plan administrator will redirect your contributions into a corrective distribution limbo.


  1. Set up a new deduction code named “Solo 401(k) After-Tax.”

  2. Split evenly: If you have 24 pay periods, $9,000 ÷ 24 = $375 per check.

  3. Watch for glitches: Ensure your payroll doesn’t lump after-tax contributions into your regular deferral bucket by default.

  4. Re-test monthly: Confirm the after-tax bucket on your plan statement is growing at $375 × N pay periods.

CTA: Double-check your setup against the PDF checklist before the first $1 is withheld.

6. Convert After-Tax to Roth

Whether you flip your after-tax dollars in-plan or roll them to a Roth IRA, the conversion step crystallizes the tax-free growth. Do it too infrequently and you’ll pay taxes on unwanted earnings; do it too hastily and you might trip simple IRS timing rules. Nail your cadence for maximum efficiency.


You have two routes:

Method

Pros

Cons

In-plan Roth

Instant, no extra accounts

The provider must support in-plan conversion

IRA rollover to Roth

Works if in-plan is not allowed

Must manage 60-day IRA rules

  1. Timing: Convert at least quarterly to minimize earnings in the after-tax bucket—only earnings are taxable.

  2. Execution: Submit a conversion form or online request specifying “After-Tax → Roth.”

  3. Tax treatment:

    • Principal (your after-tax dollars) = $0 tax.

    • Earnings = taxed as ordinary income in the year of conversion.

  4. Example:

    • You contributed $9,000 after tax in Q1.

    • Four weeks later, it earned $60.

    • Convert $9,060 to Roth: report $60 as taxable income.

Reminder: Book a quick discovery call if your provider’s portal is confusing—they’ll often waive the fee for new clients.

7. Year-End Reporting & Compliance

All those conversions and contributions must translate into clean filings, or you’ll pay penalties that dwarf any admin fee you’d avoid. From 1099-Rs for each conversion to the 5500-EZ if you breach $250,000 in assets, this section keeps you from waking up to surprise letters from Uncle Sam.


  1. Form 1099-R: You’ll receive one for each conversion. Box 2a shows taxable earnings.

  2. Form 5500-EZ: Required if plan assets exceed $250,000 as of December 31.

  3. IRS deadlines:

    • 1099-R by January 31.

    • 5500-EZ by July 31 (no extensions).

  4. Checklist step: Mark your calendar with these dates—late filings can trigger $250/day penalties.

CTA: Use our calendar template in the PDF checklist to stay ahead of every deadline.

California-Specific Notes

California’s tax code doesn’t play favorites with Roth conversions; they’re all ordinary income at rates up to 12.3%. This add-on state hit demands strategic timing and bracket management, or you’ll wipe out half your Mega-Backdoor benefit in extra state tax.


  • State taxation on conversions: Unlike some states that exempt Roth conversions, California treats all Roth conversions as taxable income at your ordinary rate (up to 12.3%). Be extra cautious on conversions that push you into higher brackets. Budgeting Money - The Nest

  • No state deduction: Your after-tax contributions carry no California deduction, but that’s moot—they’re after-tax dollars anyway.

  • Timing tip: If you expect lower income in 2025 (e.g., a planned sabbatical), front-load your Q1 conversions to soften the state-tax blow.

  • Filing deadline: California’s tax return is due April 15; plan conversions so your W-2 + 1099-R combo doesn’t surprise you.

    Flat-style infographic illustrating the four core steps of the Mega-Backdoor Roth Solo 401(k) strategy: Plan Setup, Max Deferral, Capacity Calculator, and Convert to Roth.

Conclusion

The Mega-Backdoor Roth isn’t a flashy gimmick—it’s the most powerful after-tax savings

lever available to solo 401(k) holders. You’ve already navigated the elective deferrals and profit-sharing; now it’s time to turn those excess dollars into Roth gold. Every $1 you convert today grows tax-free, compounding for decades to create a retirement fund that not even California’s top bracket can invade.


Ready to lock in your roadmap and avoid costly missteps?



Stop leaving savings on the table—execute this playbook, refresh annually, and watch your Roth bucket swell well beyond what you thought possible.





Further Reading



Disclosures:

This article is provided for general educational purposes only and does not constitute tax, legal, or investment advice—please consult your own financial, legal, or tax advisor before implementing any strategies; nothing herein is an offer or solicitation to buy or sell any security or financial product, and past illustrations or hypothetical savings are not guarantees of future results. Not all Solo 401(k) plans permit after-tax contributions or in-plan Roth conversions—always verify your plan document and work with your plan administrator or custodian. State tax treatment varies (e.g., California taxes all Roth conversions as ordinary income), and you remain responsible for complying with all IRS contribution, conversion, and reporting limits and deadlines (including §415, §402(g), Form 1099-R, and Form 5500-EZ) to avoid penalties.


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Disclaimer: This post is for educational purposes only and does not constitute investment advice. Investments involve risk, including loss of principal. Always consult a qualified financial advisor about your specific situation.

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