Originally Posted by BergLust
Hi Exit 2024, thanks for the post. So, let me make sure I understand. YOu were able to open a Solo 401K because you officially have a business. Is this a LLC or something else? Anyway, you rolled your Traditional IRA into your Solo 401K, then are doing a backdoor Roth from your Solo 401K into your Roth IRA. Is that correct? I don't understand the Schedule C comment. Why do you have to do that every year?
Sounds interesting, just need some help understanding! Thanks!
Side business is not LLC, it is just "Sole Proprietor",
here is definition from IRS.gov
A sole proprietor is one individual who owns a company that is not incorporated or registered with the state as a limited liability company (LLC). Sole proprietors may or may not have employees.
In a sole proprietorship:
The business does not exist separately from the owner.
The risks of business apply to the individual's personal assets, including those not used for the business.
The sole proprietor reports business income on his or her individual tax return.
Taxes for that business filed on Schedule C of the tax return.
Technically you do not need to have EIN for such type of business and can use your SSN , BUT you still are eligible to get EIN assigned for the purpose of opening Keogh Plan which is "Solo" or "Self-employed" 401k.
Steps would be the following :
-- request EIN from IRS.gov, now you can do it online, when asked for the reason of such request - choose Keogh plan
-- go to fidelity.com and search for Self-Employed 401k, there is the standard plan document that you need to fill out to open account, requires to have EIN
--as soon as account opened you can roll over your Tradition IRA into it, call Fidelity - they will walk you step by step
--after rollover is completed now you do not have any funds in traditional IRA anymore
-- you can start doing back door Roth: make non-deductible contribution into any new Traditional IRA then convert that money into Roth, repeat every year
-- you will need to file Schedule C with your taxes every year for that business and will need to file form 8606 for backdoor Roth activities
Basically that Solo/SE 401k will be holding place for your traditional IRA money but because it is not an IRA it will not affect you ability to do backdoor Roth