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Solo 401k Employee vs Employer contributions

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  • Solo 401k Employee vs Employer contributions

    So I just set up my Fidelity self-employed 401k and I'm in the process of rolling my SEP IRA into this account to free up room for future backdoor ROTH contributions.

    Looking at the 401k my question is now..If my pretax income is approximately $400k a year.  Is there any reason to delineate any of my contributions as employee contributions or can I make them all as the employer to simplify the accounting?  I'll be able to max the $53k limit without getting anywhere close to the max % contribution from the business.

    Definitely this year I'm making sure to keep track of my prior SEP IRA contributions so that I don't go over the combined limit.

  • #2
    I don't see any reason to prevent you. At the same time, I also don't see how it makes the accounting that much simpler. Of course, be sure your net profits are high enough to allow you to do the full contribution. Not likely they wouldn't be, but doesn't hurt to point that out in case you bought an expensive piece of equipment to section 179.

    You wouldn't happen to be hiring your spouse, would you? That could bring your profits down quite a bit.

    Any chance of W2 income? This would free you up for the $18k as an employee at another job.

    Note that r/o your SEP in 2016 will allow you to do a tax-free back-door Roth this year as it's the balance at EOY that counts. Assuming that you have no other pre-tax IRAs, of course.

    Of course, my response is based upon very sketchy information and ymmv.
    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087


    • #3
      1)Simpler just means adding numbers up to $53k instead of adding to 18 and then to 35 and then combining...I am lazy?

      2)I'm not sure what I could task my wife with for my business.  I guess she could track my CME, mileage or write the checks to my 401k.

      3) I'm an ER doc so there aren't many things to track and I don't have much in the way of expenses for the business.  I can't seem to justify purchasing anything except for CME, a white coat or every 3 years an iphone/macbook.

      4) No current outlook for any W2 income but I guess we could always get bought out and turned into employees. I guess this would be the main reason to only have employer contributions.  I may pick up a shift at the hospital down the street from my house if I hear some good reviews but I don't even know what their staffing model is.

      5) My wife just started a new job, govt 403b, 457 with mandatory contributions/matching that will give her about 63k tax deferred.  I'm trying to max all of her plans before year end.  If I can do that I'll hit the Roths this year, we don't have any other IRAs.

      At 53k for me, 63k for her and 11k for backdoor Roths (127k total) I'm not sure how much more we need to put in retirement.  It will be about 20% of our gross into tax deferred accounts.  Outside of childcare, mortgage and loan repayment we live a very nice life on about 70k a year...I don't think we'll likely graduate into big spenders at any point.