The Mega Backdoor Roth: A Powerful Strategy for Solo Business Owners
If you’re self-employed or a business owner with no full-time employees—and you’re drawn to the long-term advantages of Roth-style retirement savings—the mega backdoor Roth strategy may be one of the most valuable financial tools at your disposal.
What is the Mega Backdoor Roth IRA?
Unlike the standard Roth IRA or even a regular backdoor Roth (which limits you to $7,000 in contributions—or $8,000 if you’re 50 or older), the mega backdoor Roth allows you to contribute up to $70,000 annually, or $77,500 if you’re over 50. That’s more than 10 times the standard Roth IRA limit.
How It Works
The mega backdoor Roth hinges on having a solo 401(k) plan with two key features:
- After-tax contribution capability
- In-service withdrawals or in-plan Roth conversion options
Once your plan is properly structured, you can contribute using a combination of:
- Elective Roth contributions: up to $23,500 ($31,000 if you’re 50+ in 2025)
- Voluntary after-tax contributions: up to $46,500, depending on your income and plan design
From there, you can either roll the after-tax funds into a Roth IRA or convert them within the 401(k) into Roth funds.
Why It Matters
Roth accounts offer tax-free growth, no required minimum distributions (RMDs) and strategic estate planning flexibility. Heirs can inherit Roth funds without income tax, though non-spouse beneficiaries must withdraw the assets within 10 years.
Even if future tax rates remain constant, the control and flexibility of Roth savings can be a major advantage—especially if you anticipate higher taxes or want to simplify distributions in retirement.
Is It Right for You?
If you’re a sole proprietor, own a corporation or are a partner in a business with no employees, the mega backdoor Roth could be a game-changer for your retirement plan.
Ready to explore advanced retirement strategies tailored to your business and personal wealth management goals? Contact Illumination Wealth today.