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100% Income in Solo 401k + Backdoor Roth

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  • 100% Income in Solo 401k + Backdoor Roth

    If I setup a Solo 401k and contribute 100% of my income (all IC) in 2017, can I ALSO contribute to a traditional IRA in the same year? I figure I'm probably capped at 100% of income, but I wasn't sure because of the various spousal IRA options. (My husband is a W2 physician, I'm a freelancer.)

  • #2
    There are maximum contributions to a Solo 401k.  Presumably you will earn more than $18,000 in net income, yet this is the employee contribution limit.  As far as the employer contribution limit there is a worksheet on Pub 560, page 23.  If we're talking about 401k vs IRA and not worrying about these details I don't know why you can't contribute to a traditional IRA.

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    • #3




      There are maximum contributions to a Solo 401k.  Presumably you will earn more than $18,000 in net income, yet this is the employee contribution limit.  As far as the employer contribution limit there is a worksheet on Pub 560, page 23.  If we’re talking about 401k vs IRA and not worrying about these details I don’t know why you can’t contribute to a traditional IRA.
      Click to expand...


      No. I'll be very close to the $18,000 limit, so I'm asking about contributing 100% of my income to the employee portion of the Solo 401k plus funding a non-deductible traditional IRA (backdoor to Roth, since our household income is too high for a straightforward Roth). I know you can't contribute more than you earned into any single retirement account, but I don't know how spousal IRAs figure into the equation.

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      • #4
        You should be able to do a traditional IRA contribution for both you and your wife.  The spousal IRA is based on earned income.  I'd just double check what that is, but I'm pretty sure you'd qualify.

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        • #5
          So just as an example, if I earn $18,000 in IC income (freelance writer) and my husband earns $400,000 in W-2 income (physician), I can personally contribute $18,000 to my Solo 401k + $5,500 to my traditional IRA in the same year? I thought you couldn't contribute more then you earned as an individual.

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          • #6




            If I setup a Solo 401k and contribute 100% of my income (all IC) in 2017, can I ALSO contribute to a traditional IRA in the same year? I figure I’m probably capped at 100% of income, but I wasn’t sure because of the various spousal IRA options. (My husband is a W2 physician, I’m a freelancer.)
            Click to expand...


            Of course, you can contribute 100% of your compensation ($18k) to a SOLO-k and then your DH can contributr to a spousal back-door IRA on your behalf.

            However, I was interested in whether you could contribute $18k to your SOLO-k and then contribute $5,500 to an IRA on your own behalf, which was your original question. I had never had that question before and was pretty sure you couldn't. Upon research, however, it appears that I was wrong and that you can, indeed, contribute a total of $23,500 to retirement accounts on only $18k of earned income. Interesting.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7


              However, I was interested in whether you could contribute $18k to your SOLO-k and then contribute $5,500 to an IRA on your own behalf, which was your original question. I had never had that question before and was pretty sure you couldn’t. Upon research, however, it appears that I was wrong and that you can, indeed, contribute a total of $23,500 to retirement accounts on only $18k of earned income. Interesting.
              Click to expand...


              That's great. Thank you!!

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              • #8
                Yeah, Pub ?590? deals with this.  Your ability to contribute to a Traditional is also dependent on the spouse's earned income.  This is the spousal IRA concept.  The spouse's EI allows you to put excess money away even though you didn't earn it.  I believe you must filed married filing jointly (not sure why you wouldn't but just to throw that out there).  My wife and I are in a similar situation.

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                • #9




                  Yeah, Pub ?590? deals with this.  Your ability to contribute to a Traditional is also dependent on the spouse’s earned income.  This is the spousal IRA concept.  The spouse’s EI allows you to put excess money away even though you didn’t earn it.  I believe you must filed married filing jointly (not sure why you wouldn’t but just to throw that out there).  My wife and I are in a similar situation.
                  Click to expand...


                  Actually, anybody with enough earned income can contribute to a TIRA. The ability to deduct the contribution is predicated on the family's earned income and the ability to participate in employer retirement plans.
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Yeah, this seems pretty standard.  My wife has not earned any income in years, and we're doing back door Roths for her every year.   So if her income is $0 and I can do it, it seems you should be able to do it to.   I did run this by an accountant a long time ago, but now I guess I'll go double-check.

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                    • #11
                      I know that you can contribute to Roth IRA for a spouse who doesn't work. My husband is a SAHD and we do Backdoor Roth IRA for each of us even if he doesn't have any income (he did make a little on a side gig but less than $5,500).

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                      • #12







                        Yeah, Pub ?590? deals with this.  Your ability to contribute to a Traditional is also dependent on the spouse’s earned income.  This is the spousal IRA concept.  The spouse’s EI allows you to put excess money away even though you didn’t earn it.  I believe you must filed married filing jointly (not sure why you wouldn’t but just to throw that out there).  My wife and I are in a similar situation.
                        Click to expand…


                        Actually, anybody with enough earned income can contribute to a TIRA. The ability to deduct the contribution is predicated on the family’s earned income and the ability to participate in employer retirement plans.
                        Click to expand...


                        Yes!  Sorry I misspoke.  I don't know why but my mind was going to the stay at home mom/dad situation, kind of like the last poster.

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                        • #13
                          Be careful with the idea of putting 100% of income into the Solo 401k.  You need to take Self-Employment Tax into account.  So in fact you can put 92.35% into the 401k.  So if you have $18,000 of income, you can put 18,000*0.9235=$16,623 into the 401k.  To max the $18,000 you need to earn $18,000/0.9235=$19,491.

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                          • #14




                            However, I was interested in whether you could contribute $18k to your SOLO-k and then contribute $5,500 to an IRA on your own behalf, which was your original question. I had never had that question before and was pretty sure you couldn’t. Upon research, however, it appears that I was wrong and that you can, indeed, contribute a total of $23,500 to retirement accounts on only $18k of earned income. Interesting.
                            Click to expand...


                            If you are talking about an individual not making a spousal IRA contribution, they can only make retirement plan contributions up to their available compensation.

                            For example, a single individual with $18,000 in net self-employment income (net business profit - 1/2 SE tax) who made a Solo 401k pre-tax deferral of $18,000.  They could not make an IRA contribution, because that deferral reduced their available compensation to $0.

                            However, if in the example above, the individual made a Solo 401k pre-tax deferral of $12,500 and a Solo 401k Roth deferral of $5,500. They could make a $5,500 IRA contribution, because there was $5,500 of compensation available.

                            Of course the OP with the available compensation of their spouse, can make a spousal IRA contribution, regardless.

                            Comment


                            • #15


                              If you are talking about an individual not making a spousal IRA contribution, they can only make retirement plan contributions up to their available compensation. For example, a single individual with $18,000 in net self-employment income (net business profit – 1/2 SE tax) who made a Solo 401k pre-tax deferral of $18,000.  They could not make an IRA contribution, because that deferral reduced their available compensation to $0.
                              Click to expand...


                              This sounds obvious to me, but when I tried to find IRS guidance, I found the opposite - after about 20 minutes of googling! Needless to say, I cannot find the cite now, which I should have saved. Maybe I misinterprerted, and I'll have to try again later when tax reviews are caught up. Can you give me a reference? It was difficult to find a search string to research as most material points toward maximum, not minimum, income limits.
                              Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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