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SIMPLE-IRA and backdoor Roth

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  • RadsMD
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    Absolutely and he needs to do so. There must be something else to the story with your CPA not allowing the SOLOk. Did the 1099 income simply get run through the s-corp and then get distributed? That was kind of a no-no but if you dissolved the s-corp after that, I’m pretty sure the irs will overlook.
    Click to expand...


    I'm sure there's more to the story than I understand. We are in the process of dissolving the s-corp. Once that's complete, we'll open the solo 401k. Thanks so much for the advice.

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  • jfoxcpacfp
    replied
    Absolutely and he needs to do so. There must be something else to the story with your CPA not allowing the SOLOk. Did the 1099 income simply get run through the s-corp and then get distributed? That was kind of a no-no but if you dissolved the s-corp after that, I'm pretty sure the irs will overlook.

    Leave a comment:


  • RadsMD
    replied







    My husband and I are a dual-physician family. I first did our backdoor Roths in 2016 and already did our Roth conversions for 2017. He started a new position recently with a small group and was told his retirement plan through his job will be a SIMPLE-IRA. Since we’ve already done the Roth conversion for 2017, can he do the SIMPLE-IRA? Will we have to pay pro rata taxes on the conversion? If so, what’s the best way to proceed in future years?
    Click to expand…


    This must be a very small start-up practice and perhaps in the near future they will make the change to a 401k with profit-sharing. Until then, this is a very good time to make the best of the situation by contributing the most possible to a taxable account. You will have to make a choice – either the SIMPLE IRA or the back-door Roth but not both – for now. Start with the SIMPLE but you can actually have both if you play your cards right.

    Here’s how to do it: If you have any opportunity for IC income in the next 2 years (either one of you), earn some money from a side gig and employ your spouse for admin work. Set up a SOLO-k for each of you – doesn’t have to be much to start. After 2 years, your husband is free to roll his SIMPLE account to a non-SIMPLE account (such as the SOLO-k) without penalty and you’re free to begin contributing to back-door Roth IRAs again. At that point, all he has to do is max out the full SIMPLE contribution each year, roll it over to the SOLO-k before the end of each year and then proceed with the back-door Roth. Until then, he can still contribute to the non-deductible TIRA for the next 2 years and convert those contributions in the year he rolls out the SIMPLE.

    More on this in the first of my 3-part series on small business retirement plans, which begins with SIMPLE IRAs.
    Click to expand...


    It's a small practice, but not new. I suspect the primary owner set it up this way and then never changed it. Perhaps if my husband becomes partner in a couple of years, he can have a role in changing it.

    Prior to this employed position, he was working as a solo practitioner and had set up an S corp with the anticipation of growing his practice. He never set up the appropriate salary structure with his accountant for the S corp, so his income is all 1099 for 2016. I was going to set up a solo 401k for him for 2016, but the CPA said he couldn't because he didn't draw a salary. He's now continued to do a little IC work in 2017, though I suspect now that it won't be more than 15k for the year. Despite what the CPA said, are we allowed to take his 1099 income and open a solo 401k?

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  • RadsMD
    replied
    Thank you.

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  • jfoxcpacfp
    replied




    My husband and I are a dual-physician family. I first did our backdoor Roths in 2016 and already did our Roth conversions for 2017. He started a new position recently with a small group and was told his retirement plan through his job will be a SIMPLE-IRA. Since we’ve already done the Roth conversion for 2017, can he do the SIMPLE-IRA? Will we have to pay pro rata taxes on the conversion? If so, what’s the best way to proceed in future years?
    Click to expand...


    This must be a very small start-up practice and perhaps in the near future they will make the change to a 401k with profit-sharing. Until then, this is a very good time to make the best of the situation by contributing the most possible to a taxable account. You will have to make a choice - either the SIMPLE IRA or the back-door Roth but not both - for now. Start with the SIMPLE but you can actually have both if you play your cards right.

    Here's how to do it: If you have any opportunity for IC income in the next 2 years (either one of you), earn some money from a side gig and employ your spouse for admin work. Set up a SOLO-k for each of you - doesn't have to be much to start. After 2 years, your husband is free to roll his SIMPLE account to a non-SIMPLE account (such as the SOLO-k) without penalty and you're free to begin contributing to back-door Roth IRAs again. At that point, all he has to do is max out the full SIMPLE contribution each year, roll it over to the SOLO-k before the end of each year and then proceed with the back-door Roth. Until then, he can still contribute to the non-deductible TIRA for the next 2 years and convert those contributions in the year he rolls out the SIMPLE.

    More on this in the first of my 3-part series on small business retirement plans, which begins with SIMPLE IRAs.

    Leave a comment:


  • litovskyassetmanagement
    replied
    Yes, if he contributes to a SIMPLE. You can undo the Roth conversion and contribute to a SIMPLE IRA or to simplify things, just contribute to a taxable account for 2017 to save you the trouble.  I would have the group reconsider doing a SIMPLE as a retirement plan unless the partners are not making much and/or there are multiple non-partner employees, so that a 401k plan is prohibitively expensive for the practice.  If SIMPLE stays, I'd recommend doing non-deductible contributions and wait until such time that a SIMPLE is upgraded to a 401k.  Not much you can do at this point.

    Leave a comment:


  • RadsMD
    started a topic SIMPLE-IRA and backdoor Roth

    SIMPLE-IRA and backdoor Roth

    My husband and I are a dual-physician family. I first did our backdoor Roths in 2016 and already did our Roth conversions for 2017. He started a new position recently with a small group and was told his retirement plan through his job will be a SIMPLE-IRA. Since we've already done the Roth conversion for 2017, can he do the SIMPLE-IRA? Will we have to pay pro rata taxes on the conversion? If so, what's the best way to proceed in future years?
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