Can I Make NRAT contributions to solo 401k?

[deeppizza]

I am a hospital employed physician and currently max out my employers 401k (with ~ 6K in match) and 457b, max out my HSA, and max out my tIRA which I convert to Roth annually. From what I understand, the IRS limit is 53K for all 401K contributions annually (including employer match), so that should leave me around 29K that I left to contribute NRAT contritbutions.  Unfortunately, my employer doesn't allow after tax contributions to their 401k plan (although I've requested it).   So I was wondering if there is any other way to make NRAT contributions to maximize retirement savings up to the IRS threshold such as through a solo 401k.  I know that none of the "free" providers (Vanguard, Fidelity, etc...) allow NRAT in their solo 401k plans.

One other caveat: I also make a small amount of side income outside of my employer through consulting, ~ 10K annually, which I've been contributing the allowable amount into a SEP-IRA and then do a backdoor Roth conversion.  Is there any benefit to making those contributions into a solo 401K instead?  Am I allowed to contribute a higher percentage of that side income into a solo 401K as opposed to the SEP?

[jfoxcpacfp]

NRAT = Non Roth After Tax contributions for those of you who are wondering what the heck deeppizza is referring to.

To answer your question, yes, you can use a SOLO-k to make NRATs if, as you have pointed out, you can find a custodian that will accommodate you.

The bigger issue, however, is your statement that you have been contributing to a SEP and doing a backdoor Roth conversion. You can 1) contribute to a nontaxable IRA and convert to a backdoor Roth or you can 2) convert SEP funds into a Roth IRA and pay taxes on the conversion but you cannot stitch the 2 procedures together. Can you clarify what you have been doing, exactly?

To answer your final 2 questions:

• Yes, the benefit of contributing to a SOLOk is that you will not be taxed on the aforementioned backdoor Roth conversions while you will be taxed if you have a SEP balance in your name.


• No, since you are already using up your $18k direct 401k allotment at your W2 job, then the amount you can contribute to a SOLOk via a % match is identical to the amount you can contribute to a SEP with the exception of NRAT contributions.
  
  
  
  • For example, if you have a plan that allows NRATs, you can effectively contribute your total IC earnings (after adjusting for Medicare premiums) to your SOLO-k.
  
  
  
  

[deeppizza]

I currently convert SEP funds into a Roth IRA and then pay taxes on the conversion.

So if I understand you correctly, if I am able to find a third party administrators (TPA) to manage the solo 401K, I would be able to contribute the remainder allowed (~ 29K as I mentioned above) to it?  From what I've heard, TPAs can sometimes cost a descent amount to set up and maintain the account, but it appears to me that it would be worth it, especially if you were able to make a roth conversion with the solo 401K.  Are there any reputable TPAs that are recommended?

[FutureDoc]

Johanna, not to hijack but I had a question.  Presuming you had multiple 401k plans listed below, with independent employers, is the following scenario allowed?

Retirement Plans:

401k A- Allows NRAT contributions, allows in service rollovers yearly

401k B- Has ROTH option, allows incoming roll-overs from other 401k plans

Roth IRA

 

First: Contribute your 18k standard contribution to 401k A, then fill up the rest of the 53k limit with NRAT contributions (so 35k in NRAT)

Second: Roll the NRAT contributions (but not their earnings) over to the ROTH 401k at a different employer that accepts 401k rollovers.

 

Is this allowed under the current rules?  Or would you only be allowed to roll over the NRAT contributions to the ROTH IRA?

 

Thanks for any help, I did some googling but couldn't find anywhere this specific scenario has been addressed yet.

[jfoxcpacfp]

First, pls confirm for me that this is a real issue and not a theoretical discussion :-)

[FutureDoc]

Oh no, I'll freely admit that it's theoretical for now.  I'm looking at setting up a Solo 401k next year on top of the retirement accounts I have access to at work  and was wondering about NRAT options after I have both.  If it's going to take time to figure out don't worry about it.

[jfoxcpacfp]

It is possible for a designated Roth account to accept rollovers. The plan document of your current employer's plan will be the deciding factor.

[FutureDoc]

Ahh, so the current work plan would have to be able to perform Roth rollovers, the receiving Roth account would have to be contributed to, and would have to be set up to receive Roth rollovers.  Good to know for a theoretical basis, but I suspect that would be a heck of a lot more work trying to coordinate than just rolling over to a Roth IRA.

 

Edit: Also man you always reply quick!  I didn't expect anything until tomorrow or monday.

[litovskyassetmanagement]

deeppizza wrote:

I am a hospital employed physician and currently max out my employers 401k (with ~ 6K in match) and 457b, max out my HSA, and max out my tIRA which I convert to Roth annually. From what I understand, the IRS limit is 53K for all 401K contributions annually (including employer match), so that should leave me around 29K that I left to contribute NRAT contritbutions.  Unfortunately, my employer doesn’t allow after tax contributions to their 401k plan (although I’ve requested it).   So I was wondering if there is any other way to make NRAT contributions to maximize retirement savings up to the IRS threshold such as through a solo 401k.  I know that none of the “free” providers (Vanguard, Fidelity, etc…) allow NRAT in their solo 401k plans.

One other caveat: I also make a small amount of side income outside of my employer through consulting, ~ 10K annually, which I’ve been contributing the allowable amount into a SEP-IRA and then do a backdoor Roth conversion.  Is there any benefit to making those contributions into a solo 401K instead?  Am I allowed to contribute a higher percentage of that side income into a solo 401K as opposed to the SEP?

Click to expand...

The problem is that most solo 401k plans have standardized documents and they do NOT allow after-tax contributions.  To do that you'll have to get a custom plan document from a TPA (at Vanguard, for sure).  Check with your solo 401k plan provider whether this is part of the plan document - I don't think that would be the case for most providers.

[litovskyassetmanagement]

deeppizza wrote:

I currently convert SEP funds into a Roth IRA and then pay taxes on the conversion.

So if I understand you correctly, if I am able to find a third party administrators (TPA) to manage the solo 401K, I would be able to contribute the remainder allowed (~ 29K as I mentioned above) to it?  From what I’ve heard, TPAs can sometimes cost a descent amount to set up and maintain the account, but it appears to me that it would be worth it, especially if you were able to make a roth conversion with the solo 401K.  Are there any reputable TPAs that are recommended?

Click to expand...

Yes, there are some TPAs that would do this type of work, you'll just need to shop around.  You will also pay ongoing admin costs because at some point you'll have to file form 5500 (after your asset level goes above $250k).

[jfoxcpacfp]

FutureDoc wrote:

Edit: Also man you always reply quick!  I didn’t expect anything until tomorrow or monday.

Click to expand...

Always multitasking   .

[deeppizza]

I'm not sure if I'm getting conflicting answers; someone I spoke with told me that I cannot establish a solo 401k to be used to make after tax contributions from the income I receive from my W2 job. Is that correct?

[jfoxcpacfp]

deeppizza wrote:

I’m not sure if I’m getting conflicting answers; someone I spoke with told me that I cannot establish a solo 401k to be used to make after tax contributions from the income I receive from my W2 job. Is that correct?

Click to expand...

That is correct unless you are the employer and set up a SOLO-k for the employee (yourself).

[deeppizza]

Thanks.

So are there any other options for me to be able to save more in a qualified retirement account or tax-deferred account than what I already am doing, or am I relegated to using taxable accounts at this point?

Quick recap:                                                                                                                                                                                                            max out employers 401k and 457b                                                                                                                                                                          max out my HSA                                                                                                                                                                                                    max out my tIRA which I convert to Roth annually                                                                                                                                                          contribute to SEP from 1099 income                                                                                                                                                                  contribute to 529 up to limit of state tax deduction