Harvard Law Attorney George Blower reviews the options for E*Trade individual 401k account holders in response to E*Trade’s decision to no longer support non-deductible employee contributions (Mega Backdoor Roth Solo 401k) for its individual 401k plans.

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Solo 401k Alert! E*Trade Stops Support for Mega Backdoor Roth Solo 401k – Find out your Options!

In a shocking move, E*Trade, one of the most popular brokerage firms for Solo 401k plans, has recently announced that they will no longer support the Mega Backdoor Roth strategy. This decision has left many self-employed individuals and small business owners who rely on this innovative retirement savings approach in a predicament. If you are one of them, keep reading because we will explore your options and suggest possible alternatives.

First, let’s briefly explain the Mega Backdoor Roth strategy. A traditional after-tax contribution refers to contributing funds to a retirement account on an after-tax basis. The Mega Backdoor Roth strategy takes advantage of this by allowing individuals with Solo 401k plans to make additional after-tax contributions beyond the traditional limit set by the IRS, currently at $58,000 for individuals under 50 years of age. These excess contributions can then be converted to Roth funds, providing potential tax-free growth and withdrawals in retirement.

E*Trade’s decision to discontinue support for the Mega Backdoor Roth strategy has left many wondering why they made this move. While the exact reasons haven’t been disclosed, speculation suggests that regulatory concerns and challenges in implementing this complex strategy at scale might be the main factors.

So, what are your options if you had an E*Trade Solo 401k and were utilizing the Mega Backdoor Roth strategy? Here are a few suggestions:

1. Explore other brokerage options: While E*Trade might have withdrawn support, other brokerage firms still offer the Mega Backdoor Roth option. Look into other reputable platforms, such as Vanguard, Fidelity, or TD Ameritrade. Ensure that the broker you choose supports the strategy and offers low-cost investment options.

2. Consider a plan amendment: If you have a Solo 401k plan with E*Trade, you could consider amending your plan to remove the Mega Backdoor Roth strategy altogether. While this means you won’t be able to continue utilizing this approach, it might be a viable solution if you’re not heavily invested in the strategy or if you find an alternative savings plan.

3. Seek professional advice: To better understand the impact on your retirement savings and to explore your options, consult with a financial advisor or tax professional who specializes in retirement planning. They can help you assess your situation and propose suitable alternatives tailored to your specific needs and goals.

4. Evaluate other retirement savings options: If the Mega Backdoor Roth strategy was an integral part of your retirement plan, take this opportunity to re-evaluate other savings options available. Consider contributing more to your traditional 401k, Individual retirement account (IRA), or possibly a Health Savings Account (HSA) if you qualify. Each of these avenues has its limitations and features, so ensure you understand the rules and seek professional advice, if needed.

While E*Trade’s decision might have caught many off guard, it doesn’t mean the end of the Mega Backdoor Roth strategy. There are alternatives and options available; it’s just a matter of exploring and finding the right provider for your needs. Remember, retirement savings should always be a priority, and with proper planning and guidance, you can still achieve your long-term financial goals.