Can I contribute to my SEP and roll it into my 401k the same year I do a mega backdoor Roth without any tax liability? If yes, how do it do it?
Yes, you can contribute to your SEP IRA and roll it into your 401k in the same year you do a mega backdoor Roth, but there are several steps and rules to follow to avoid tax liability. 1. Contribute to your SEP IRA: The maximum contribution for 2021 is 25% of your compensation or $58,000, whichever is less. 2. Roll over your SEP IRA into your 401k: This step is crucial because it helps avoid the pro-rata rule, which could otherwise lead to tax liability when you do the mega backdoor Roth. Before you do this, make sure your 401k plan accepts rollovers from SEP IRAs. 3. After-tax contributions to your 401k: Check if your 401k plan allows after-tax contributions and in-service withdrawals. If it does, you can contribute up to the overall limit for 401k contributions, which is $58,000 in 2021. 4. In-service withdrawal to Roth IRA: Once the after-tax contributions are in your 401k, you can then do an in-service withdrawal and move those funds to a Roth IRA. This is the "mega backdoor Roth" part of the strategy. 5. Conversion to Roth: The after-tax contributions that you moved to the Roth IRA will not be taxed. However, any earnings on those contributions will be taxable. Remember, this is a complex strategy and it's recommended to consult with a tax professional or financial
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