profit sharing 401k

[smitandr]

I have been funding a profit sharing 401k at $53,000 through my practice for the last few years. I inquired about also funding an IRA and converting to Roth and was told I could not fund it seperately but could fund it through the 401k. Is this correct and can anyone explain this further?

Thanks.

[spiritrider]

I have no idea what the person who told you this was thinking about.

There is an extreme rarity called a deemed IRA, that a qualified plan can allow a separate IRA sub account under their plan. It serves no benefit other than allowing a participant to contribute by payroll deduction and use the plan's investments. I have never run into anyone having a plan with this feature, because as a practical matter it provides no benefit.

Anyone who is an active participant in an employer sponsored retirement plan can still open and contribute to a traditional IRA at any provider. Having a 401k does limit the deduction available to those with a MAGI above the limits. Having a 401k has no impact on your ability to convert traditional IRA assets to a Roth IRA. The only thing that impacts the effectiveness of a backdoor Roth is other traditional IRA pre-tax assets.

 

[Zaphod]

Back door roth i assume.

[jfoxcpacfp]

smitandr wrote:

I have been funding a profit sharing 401k at $53,000 through my practice for the last few years. I inquired about also funding an IRA and converting to Roth and was told I could not fund it seperately but could fund it through the 401k. Is this correct and can anyone explain this further?

Click to expand...

Your advice is incorrect. Your 401k is an employer plan, which is separate from a personal account (IRA). You can do both. As long as you have no pre-tax IRAs in your name, you can also convert any IRA contributions, tax free, to a Roth IRA.

Your employer plan can allow for both pre-tax, Roth, and nondeductible 401k contributions. Again, this calculation does not affect your annual personal IRA contribution.

[smitandr]

Thanks for the responses.