Announcement

Collapse
No announcement yet.

Roth and IRA question

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Roth and IRA question

    I get a W2 from my employer and max out my 401k contribution and employer contributes to max of 53k. Normally I fund a traditional IRA and then do a backdoor Roth IRA conversion. This year I did some moonlighting so my question is can I fund a solo 401k and/or SEP IRA in addition to the employer 401k and backdoor Roth?

  • #2
    Yes, you can fund a solo 401k and still do your employer 401k and backdoor Roth IRA. You can fund a SEP-IRA but it will count against you (as it is lumped in with Trad IRAs) in terms of the pro-rata rule that will affect your ability to do the backdoor Roth IRA without tax consequences. Therefore, your best bet based on what you've shared would be to do the solo 401k.

    When funding more than one 401k of any kind, keep in mind that there are employEE and employER contributions. You may only make a total employEE contribution of $18k (or $24k if older than 50) between all 401k accounts. The rest of the contribution up to the $53k limit would have to come from the employERs.

    If you get some kind of match in your W-2 401k, it would be prudent to make enough of an employEE contribution to get the full match. After that it depends on what your W-2 401k's fund options are like. That is, if you only have high-cost options or active-managed funds (often one and the same), then it might make sense to make the rest of your emploYEE contribution to your solo 401k.

    Also bear in mind that the solo 401k employER contribution is limited to a certain percentage of total income after operating costs. I want to say you can only contribute something like 20-25% of your net profit--someone else should chime in with the accurate number.

    Comment


    • #3


      Also bear in mind that the solo 401k employER contribution is limited to a certain percentage of total income after operating costs. I want to say you can only contribute something like 20-25% of your net profit–someone else should chime in with the accurate number.
      Click to expand...


      Good explanation, nachos31 - nothing I can think to add to that.  Tdee, you can contribute 20% of the net profits from your business to the SOLO-k. Technically, it is 25%, but you have to adjust for FICA and it's easier to go ahead and use 20%.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        Thank you. That is very helpful!

        Comment

        Working...
        X