Solo 401(k) Roth Conversion
I have a client that funded a solo 401k with both deductible and nondeductible employer contributions. For simplicity, let’s assume the deductible contribution was $11k and the nondeductible contribution was $26k. Can he convert solely the nondeductible contribution amount to a Roth IRA and leave the deductible contribution amount in the solo 401k (i.e. not impacted by pro rata rule)?
Permalink Submitted by Alan - IRA critic on Thu, 2020-07-23 15:47
Usually the after tax contributions are made into a separate sub account which also includes the earnings on those contributions. As a separate account, it can often be distributed while the solo K is still active. However, the plan document prevails so client will have to check with the administrator or plan document. If allowed, the earnings on the non deductible contributions are usually small enough to roll to a Roth IRA even though taxes would be due on those earnings. But if the earnings have been allowed to accumulate in the sub account, a split direct rollover could be considered sending the after tax amount to the Roth and the earnings to a TIRA.