Mega backdoor Roth that actually works... now what?

[AlbanyConsultant]

No, really, this one works - it's a one-person plan.

The owner is maxing his Roth deferrals.  He's even going to make his max $20K PS as Roth because he's in a self-directed brokerage account, so we can make that work.  That leaves $20K to be put in as voluntary after tax, which the document allows.  I figure that should be put into a different account since that has a different tax treatment.

And then what is the best way forward?  My thought was that it was better to roll that VAT money to a Roth IRA instead of doing an in-plan Roth conversion; it helps keep the plan under the $250K to avoid the 5500-EZ for a little longer.  Are there any particular benefits or problems one way or the other?

I don't see any rules about the timing of the Roth conversion.  I'd think that depositing the VAT on Day One and, say, converting it to Roth inside the plan is just a thinly veiled excess Roth plan contribution, but I guess the regs don't see it that way.  Obviously, the goal is to minimize gains in the VAT so there is no taxable income to report (maybe leaving it in cash will take care of that).  I suppose there's still a 1099-R to report the base amount... another reason in favor or rolling to an outside Roth IRA!

Thanks!

[CuseFan]

The key is the separate recordkeeping/tracking. If staying under EZ filing threshold as long as possible is important then rolling out the VAT to Roth IRA makes sense. Keeping VAT in cash and rolling shortly after contributing will eliminate or minimize earnings, although those otherwise taxable earnings could be rolled to a traditional IRA if material and you want to avoid current taxation.