Did you know that many regular (non-solo) 401(k) plans, often sponsored by small and medium-sized companies, do not offer after-tax contributions.?

That’s because those contributions are subject to an IRS “nondiscrimination” test. That rule prohibits after-tax contributions for higher-paid employees unless lower-paid employees make a certain level of contributions. Since high-paid employees are most likely to have the funds to contribute, that test is often impossible to pass. Without after-tax contributions, the Mega Backdoor Roth strategy doesn’t work. But solo 401(k)s are exempt from the nondiscrimination rule, so there’s no problem with permitting after-tax contributions in solo plans.

Don’t forget to pick up Josh Jalinski’s new book, and Amazon Best-Seller:

Retirement Reality Check. www.retirementrealitycheck.com

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