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Backdoor roth plan, can anyone open 401K for rollover?

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  • Backdoor roth plan, can anyone open 401K for rollover?

     

    Wondering if I have my Backdoor Roth plan correct, would love some input.

    Can anyone open an individual 401k to do a rollover into it?  Wife is a W2 employee, could she start a business to get her EIN and make 0 profits?

    My current plan...

    My wife is an employee, has 20K in current IRA.
    - Check to see if her current employer 401k will take her IRA as rollover
    - If not, convert the 20K IRA to her Roth, pay the tax
    - Make a 2016 contribute to her existing IRA that now has 0 balance
    - Convert 2016 contribution to her Roth IRA

    I have 1099 income...
    - Vanguard IRA and SEP = open eTrade account and rollover into individual 401k
    - Make a 2016 IRA contribution to my existing Vanguard IRA that now has 0 balance
    - Convert my 2016 IRA contribution to my Vanguard Roth IRA
    - Make contributions to individual 401k moving forward

    Thanks for any input.

  • #2


    Can anyone open an individual 401k to do a rollover into it?  Wife is a W2 employee, could she start a business to get her EIN and make 0 profits?
    Click to expand...


    She must have profits to set up and contribute to a SOLO-k. Otherwise, your plans sound ok.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      But you don't need much profit. In fact, I don't think there is a minimum at all. Even $5-10 is probably enough. You could probably get that by starting a business taking online surveys. You will need an EIN for that business, but that's free and you can still be a sole proprietor.
      Helping those who wear the white coat get a fair shake on Wall Street since 2011

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      • #4
        I would caution against anything that has the appearance of an artificial business to facilitate nothing but a rollover. In my opinion revenue of $5 or $10 in one year is a hobby, not "engaging in a trade or business with the intention of making a profit."

        IRS 401k regulations define a self-employed individual as someone who will have/had:

        • Earned income in the year you are adopting the 401k.

        • Earned income for that business in any previous year.


        Most people are aware of the first provision, but not the second

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        • #5
          Well my backdoor plan got a little complicated so I thought I'd check back for advice.  I ended up taking a consulting gig that required paying me as a W2 employee last Oct, so now I'm a W2 employee with no 401K option at work.  My wife's 401k takes IRA rollovers, so she no longer has an IRA and is ready for backdoor contributions.  I still plan to do 1099 work on the side this year or after this W2 contract runs out.  I'm right in the middle of getting backdoor plan in place, etrade just setup my individual 401K account but I have not yet transferred the SEP and rollover-IRA. I'm guessing I should follow through with the 401k setup and transfer my SEP and IRA, but what is the best way to contribute in order to max out my contributions?

           

           

           

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          • #6
            Are you sure you'll have IC income this year? Did you have some last year? I'm not exactly sure what you're asking about the "best way to contribute"
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

            Comment


            • #7
              I was wondering if eliminating my SEP or IRA was going to limit my options or reduce my max contributions. I probably need to do some more homework on retirement plans as it's been a while since I looked at the details.

              Comment


              • #8




                I would caution against anything that has the appearance of an artificial business to facilitate nothing but a rollover. In my opinion revenue of $5 or $10 in one year is a hobby, not “engaging in a trade or business with the intention of making a profit.”

                IRS 401k regulations define a self-employed individual as someone who will have/had:

                • Earned income in the year you are adopting the 401k.

                • Earned income for that business in any previous year.


                Most people are aware of the first provision, but not the second
                Click to expand...


                That's interesting. I've never heard that. But that's easily worked around too. Make your $50 in survey money in December. Do it again in January. Open individual 401(k). The point is becoming self-employed is much easier than most people think.
                Helping those who wear the white coat get a fair shake on Wall Street since 2011

                Comment


                • #9
                  My wife's 401k will take a rollin so don't need to worry about 401k to get rid of her ira. Ive been consulting for 5yrs and have had multiple years in past with 50k+ in 1099 income and plan to do so in future, 2016 was an odd year as I only worked half the year and it was a w2 position. So indi 401k shouldn't be an issue.

                  Comment


                  • #10




                    My wife’s 401k will take a rollin so don’t need to worry about 401k to get rid of her ira. Ive been consulting for 5yrs and have had multiple years in past with 50k+ in 1099 income and plan to do so in future, 2016 was an odd year as I only worked half the year and it was a w2 position. So indi 401k shouldn’t be an issue.
                    Click to expand...


                    In any situation, imo, the SOLO-k is a better solution than rolling over to an employer 401k. That is because you maintain autonomy with the SOLO-k and you relinquish it when you merge your retirement funds with your employer's plan. When you have a separate plan under your own control, you then have a receptacle for all future rollovers from future employer plans - handy. To answer a prior question, no, it will not limit your options or reduce your max contributions.
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11




                      My wife’s 401k will take a rollin so don’t need to worry about 401k to get rid of her ira. Ive been consulting for 5yrs and have had multiple years in past with 50k+ in 1099 income and plan to do so in future, 2016 was an odd year as I only worked half the year and it was a w2 position. So indi 401k shouldn’t be an issue.
                      Click to expand...


                      In any situation, imo, the SOLO-k is a better solution than rolling over to an employer 401k. That is because you maintain autonomy with the SOLO-k and you relinquish it when you merge your retirement funds with your employer's plan. When you have a separate plan under your own control, you then have a receptacle for all future rollovers from future employer plans - handy. To answer a prior question, no, it will not limit your options or reduce your max contributions.
                      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                      Comment

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