Solo 401(k) to Avoid Pro-Rata Rule
Any thoughts on this. Client has ~$2m Rollover IRA. The account contains ~$70k in after-tax contributions. Client is 58, had retired to be a teacher and gets w2 and eligible for 403b contribution but will not participate. He does provide consulting in IT and gets 1099 income (less than $3k). He is eligible to set up a solo-k. Any issues if client rolls pre-tax balance into the solo-k that is set up based on consulting income, and then do a Roth conversion of after-tax basis (besides form 5500 filings)? client plans to do consulting for a few more years and may roll the funds back into Rollover IRA and close the solo-k. Thanks!
Permalink Submitted by Alan - IRA critic on Mon, 2025-10-06 18:55
That will work as long as the solo K provider supports rollovers from IRAs into the solo K. Client should be sure that the 70k in IRA basis is correct according to prior year filings of Form 8606. It is also advisable that client also makes solo K contributions based on net income from SE, even though these contributions would be very small compared to the rollover funds.
When client ceases the consulting work, the solo K must be closed and the balance distributed, most likely as a direct rollover to an IRA.
Note that 403b contributions share the same elective deferral limits and annual addition limits as the solo K, but because the solo K contributions will be so small, there is room to contribute to the 403b as well if client wishes.
Permalink Submitted by David Manteau on Mon, 2025-10-06 21:40
Thank you, Alan!