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Ready to open the Backdoor?

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  • Ready to open the Backdoor?

    I think I'm ready to start doing Backdoor Roth IRA's this year.  Let me know if this sounds like a good plan, or if you see any errors in what I'm thinking of doing.  I figure a question on here is cheaper than hiring an accountant   .  For context: I make 210k in W2 income and expect to make 120k or more in 1099 income.  I max out employee contributions to the TSP (federal employee version of 401k) and have around 9k in a SEP-IRA at Vanguard from last year.

    As I understand it, I need to roll the SEP into a solo-401k (thinking of opening one at Fidelity since apparently Vanguard doesn't accept rollovers) to avoid the pro-rata problem.  I'd then close the SEP because I have to have a traditional IRA to convert into a Roth and wouldn't want a SEP anymore.  I would then open the traditional IRA and fund it with $5,500 and shortly thereafter open a Roth IRA and move the $5,500 into the Roth account, keeping both the traditional (with a zero balance) and the Roth for next year's backdoor conversion.  Does that sound correct?

    Where should I open the traditional and Roth IRAs?  My default would be Vanguard unless there's a reason to do elsewhere.

    Also, does putting the $5,500 into the traditional IRA and converting to Roth have any effect on the limit of how much I can put into my solo-401k?  I just wanna make sure I'm not missing anything.  Thanks!!

  • #2

    • You need to first open and fund a SOLO-k, then roll your SEP into it.

    • Why not just open your Roth and TIRA space at Fidelity since you're using it for the SOLO-k? You'll be able to see all accounts on one screen.

    • The contribution to the TIRA does not affect the SOLO-k contribution limit. One is personal and the other is business.

    • You will be limited to 20% of your net earnings from the 1099 income for SOLO-k funding since you are maxing out the TSP.

    • You're making $330k, part of which is earned income and you are asking fairly basic questions on a free advice blog. With all due respect, I'm happy you feel comfortable in doing so and glad to help, but don't be penny wise and pound foolish. Really recommend you get professional tax and financial advice (for your business, if nothing else). It should more than pay for itself.

    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087