If you run your own business and do not have employees, you’ve probably heard this frustrating little fact:
The IRS limits Roth IRA contributions to just $7,000 a year. ($8,000 if you are over 50 and feeling wise.)
And if you make “too much” money? You might not even qualify to contribute directly.
But there is a smart, totally legal way around that cap. It is called the Mega Backdoor Roth – and no, it’s not the name of a punk band from Sheboygan.
It is a legit strategy that lets you put away up to $70,000 to $77,500 a year into a Roth-style account. That is not a typo.
Let’s break it down into real steps, minus the tax-code speak.
Step 1: You Need a Solo 401(k)
This is like a regular 401(k), but for business owners with no full-time employees.
To make the Mega Backdoor Roth work, your solo 401(k) needs to do two things:
- Allow after-tax contributions
- Let you do in-service withdrawals or Roth conversions while still working
If your plan does not allow those things, it is like trying to fish in a swimming pool. Do not be that guy.
Step 2: Choose Where Your Roth Money Goes
You get options here:
- Put it into a Roth IRA
- Or use the Roth section of your solo 401(k)
Both grow tax-free. Neither forces you to take money out at a certain age. You’ll want to chat with your tax pro or advisor to decide what fits best.
Step 3: Fund the Beast
Let’s say you want to go all in and hit that $70k+ target. You do it in two chunks:
- Roth deferral – Up to $23,500 (or $31,000 if you are 50+)
- Voluntary after-tax contributions – The rest, up to the annual limit
This method skips the employer contribution part (which is pre-tax and would land in a traditional account). And you are doing this for the tax-free gains, not the paperwork flex.
Step 4: Convert to Roth
Now that the money is in, it is time to make it Roth-official.
You can either:
- Designate the contribution as Roth from the start (cleanest route)
- Or do a conversion after the fact (still works, just be sure you are following your plan’s rules)
Once converted, the funds grow tax-free, and future-you gets to enjoy them without owing the IRS a dime.
Why This Could Be a Big Deal for You
Traditional retirement accounts are fine. But the Roth version comes with some serious perks:
- No surprise tax bills later
- No required withdrawals at age 73
- More flexibility with inheritance planning
- Peace of mind (because you already paid your taxes up front)
And if you are having a high-income year, this is one of the rare strategies that still lets you build up Roth wealth without jumping through flaming hoops, or worse, IRS red tape.
Is This Tax Strategy a Fit for You?
If you:
- Run a solo business
- Want tax-free income in retirement
- Make strong income
- Do not mind sticking it to the Roth limits (legally, of course)
Then the Mega Backdoor Roth might be your new favorite move.
We Handle the Mess – You Retire Happier
At Solution 8020, we help small business owners set up and use smart tax strategies like this – without the stress, the guesswork, or the 3 a.m. panic Googling.
If the Mega Backdoor Roth sounds like something you would like to use (but not deal with alone), we’ve got your back.
Click here to book a complimentary call
No pressure. Just straight answers and a plan that fits.
