Can I make Mega Backdoor Roth Solo 401k contributions if I max out my 401k at my day job?

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The solo 401k plan, commonly referred to as self-directed Solo 41k is the retirement plan of choice for self-employed individuals or owner-only businesses including for the features highlighted below:

-The highest contribution limits for any defined contribution plan including up to $57,000 (or even $63,500 if you are 50 or older) for 2020 (for 2021: $58k or $64.5 if you are 50 or older).

-The ability to make pre-tax, Roth, and even Mega Backdoor Roth contributions.

-401k participant loans of up to $50,000

-Invest with checkbook control in real estate, cryptocurrencies, notes, private placements, and other types of alternative investments.

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As a person who is looking to maximize your retirement savings, you might have heard about the mega backdoor Roth Solo 401k contributions. This strategy involves making after-tax contributions to your 401k plan and then converting them to Roth contributions, which can help you save on taxes in the long term.

But, what if you already max out your 401k contributions at your day job? Can you still make mega backdoor Roth Solo 401k contributions?

The answer is yes, but it depends on a few factors.

Firstly, you need to have a solo 401k plan set up. This is a retirement plan that you can set up if you are self-employed or have a side business. You can contribute up to $58,000 (as of 2021) to a solo 401k plan, which includes both employer and employee contributions.

Once you have a solo 401k plan, you can make after-tax contributions up to the annual limit (which is $38,500 in 2021). However, this limit includes your contributions to your day job’s 401k plan as well.

So, if you have already maxed out your contributions to your day job’s 401k plan, you may not be able to contribute the full $38,500 to your solo 401k plan. In this case, you will need to subtract your contributions to your day job’s 401k plan from the annual limit to determine how much you can contribute to your solo 401k plan.

For example, if you have contributed $19,500 to your day job’s 401k plan, you can only contribute up to $19,000 ($38,500 – $19,500) to your solo 401k plan.

Keep in mind that making after-tax contributions to your solo 401k plan may have some tax implications. You will need to pay taxes on the earnings from your after-tax contributions when you convert them to Roth contributions. However, the tax savings in the long term can make this strategy worth considering.

In conclusion, if you have maxed out your 401k contributions at your day job, you can still make mega backdoor Roth Solo 401k contributions. You will need to set up a solo 401k plan and determine your contribution limit based on your contributions to your day job’s 401k plan. As with any major financial decision, it’s important to speak with a financial advisor to determine if this strategy is right for you.