Solo Business Owner with No Employees? The Mega Backdoor Roth Could Be a Game Changer

If you’re a solo business owner who prefers the benefits of a Roth retirement account—but your income is too high to contribute directly to a Roth IRA—there’s a powerful tool you should know about: the mega backdoor Roth!

This strategy allows you to invest up to $70,000 ($77,500 if age 50 or older) into a Roth account, compared to the regular backdoor Roth’s limit of just $7,000. If you operate your business as a sole proprietor, an S corp, or a partnership with no full-time employees, this may be the wealth-building solution you’ve been looking for.

Ken-Mar Tax helps business owners structure smart retirement contributions that work within IRS regulations and build long-term financial security.

Roth vs. Traditional Retirement Accounts

• Roth: Contributions are made with after-tax income, but withdrawals (including growth) are tax-free.
• Traditional: Contributions are tax-deductible, but withdrawals are taxed as ordinary income.

Think of it this way: Roth is front-loaded with taxes. Traditional is back-loaded with taxes.

How to Implement the Mega Backdoor Roth

1. Set up a solo 401(k): The plan must allow both after-tax contributions and either in-service withdrawals or in-plan Roth conversions.
2. Decide where the Roth money goes: You can move it to a separate Roth IRA or the Roth portion of your solo 401(k).
3. Fund the account:
   • Elective deferral: Contribute up to $23,500 ($31,000 if 50+), directly as Roth contributions.
   • Voluntary after-tax contribution: Add $46,500 using after-tax dollars.
4. Convert to Roth:
   • If allowed, designate elective deferrals as Roth contributions from the start (simplest).
   • Otherwise, use an in-plan Roth conversion or an in-service distribution to a Roth IRA for the after-tax contributions.

Why Consider a Roth?

• No required minimum distributions (RMDs) from a Roth IRA at age 73+
• Tax-free inheritance potential for heirs
• Withdraw your original contributions (not earnings) anytime without taxes or penalties

Side-by-Side: Traditional vs. Roth (35% Tax Rate)

Assuming a $50,000 annual investment for 20 years at 6% growth:

• Traditional: Final balance = $1,949,636 → After-tax = $1,267,264
• Roth (equal pre-tax): Final balance = $1,267,264 (tax-free)
• Roth (equal after-tax): Final balance = $1,949,636 (tax-free)

Key Takeaways

• At identical tax rates, Traditional and Roth accounts yield the same after-tax result—if contributions are pre-tax equivalent.
• If you can fund the Roth with after-tax dollars, the final balance can be significantly higher.
• The Roth offers more flexibility, estate planning advantages, and potential tax-free growth.

Is the Mega Backdoor Roth Right for You?

If you’re a solo business owner with no employees and are looking to build tax-free retirement savings, this strategy could unlock significant benefits. It’s also a smart way to create long-term wealth while minimizing future tax exposure.

While Ken-Mar Tax doesn’t market wealth strategies directly due to industry restrictions, we can help you navigate tax-advantaged retirement contributions through your business structure and ensure your solo 401(k) works in your favor.

Ready to take the next step toward smarter retirement planning?
Schedule a consultation with Ken-Mar Tax and start thinking outside the block.

Related Blog Posts:

Paying Yourself from Your Business Correctly
Avoid Losing Tax Deductions When Starting a Business
Attention Real Estate Professionals: Are You Paying Too Much in Taxes?
Tax Strategies to Increase Profits on Real Estate Investments and Rentals

If you’ve been frustrated dealing with the IRS, or you just don’t want to deal with the IRS, contact Ken Weinberg to explain your situation and find out what Ken-Mar Tax would charge to handle your situation and avoid dealing with the IRS all together.

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