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Roth Solo 401k vs Backdoor Roth IRA

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  • Roth Solo 401k vs Backdoor Roth IRA

    I have a question regarding selecting the most appropriate retirement accounts for my wife and myself. We are both dental specialists in our first year out of residency. This year I’ll be earning roughly $100K as a sole proprietor (1099) as well as $100K as a W2 employee, and my wife will be earning about $100K as a W2 employee. Neither one of us has a retirement account available to us though our employers. Additionally, we each have about $6,000 in Roth IRAs and about $6,000 each in Traditional IRAs from the previous two years.

    From what I can gather a solo 401k would give me the best opportunity to maximize retirement contributions this year and would also give me the opportunity to make Roth contributions (up to $19,500) while using the additional “employer” portion as pre-tax contributions.

    Would this be the optimal strategy or should I consider making all contributions to a standard solo 401k and utilize a Roth conversion strategy ( I know I’d also have to convert the funds in the existing traditional IRA in that case). Additionally, what options does my wife have as an employee with no employer sponsored plan?

    I sincerely appreciate any input, my attempts to research and teach myself have been overwhelming to this point!

  • #2
    trad 401k.
    you still need to move the tIRAs to the solo 401k.
    then you still need to do bdrIRA x2.

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    • #3
      if you are a super saver going all roth isn't a horrible idea. it is more tax protected space then a traditional.

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      • #4
        I agree with using an individual 401k to maximize tax advantaged retirement savings. I would use a company like ETrade or TDA since theirs have both traditional and Roth available. At your income level you should be in the 24% MFJ bracket. With $100K 1099 income you are eligible for the 199a QBI deduction of 20%. A Roth 401k employEE contribution is effectively taxed at 19% with the QBI deduction. The employER contribution of 20% net business profit on your 1099 income can be placed on the traditional side of the 401k. Is the tradIRA from pre-tax or after tax contributions? If pre-tax roll it into your 401k. If after-tax convert it to your Roth IRA.

        Other things to consider are using an HSA if available for health insurance and possibly consider the Mega BD Roth if you want to maximize 401k contributions (requires a custom plan and after-tax contributions but isn’t limited to 20% of NBP).

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        • #5
          At your 1099 income level, you should at least look in to a mega backdoor Roth if you would have the cash flow to max it at $57k.
          Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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          • #6
            Originally posted by GasFIRE View Post
            I agree with using an individual 401k to maximize tax advantaged retirement savings. I would use a company like ETrade or TDA since theirs have both traditional and Roth available. At your income level you should be in the 24% MFJ bracket. With $100K 1099 income you are eligible for the 199a QBI deduction of 20%. A Roth 401k employEE contribution is effectively taxed at 19% with the QBI deduction. The employER contribution of 20% net business profit on your 1099 income can be placed on the traditional side of the 401k. Is the tradIRA from pre-tax or after tax contributions? If pre-tax roll it into your 401k. If after-tax convert it to your Roth IRA.

            Other things to consider are using an HSA if available for health insurance and possibly consider the Mega BD Roth if you want to maximize 401k contributions (requires a custom plan and after-tax contributions but isn’t limited to 20% of NBP).

            Correct me if I'm wrong/misunderstanding the 199a deduction, but whether you make your solo 401k employee contributions as Roth or Traditional, it will not impact the size of the 199a deduction. It will only affect your MAGI, and thus the decision of Roth vs tradition contributions should be made based on the marginal federal tax rate of 24% (not 19% as you cited). Right?

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            • #7
              Originally posted by OncDoc123 View Post


              Correct me if I'm wrong/misunderstanding the 199a deduction, but whether you make your solo 401k employee contributions as Roth or Traditional, it will not impact the size of the 199a deduction. It will only affect your MAGI, and thus the decision of Roth vs tradition contributions should be made based on the marginal federal tax rate of 24% (not 19% as you cited). Right?
              Wrong. What matters is taxable income and the choice between Roth and pre-tax impacts that calculation.
              Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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              • #8
                Also, self-employed one-participant 401k pre-tax employee deferrals directly reduce your QBI where designated Roth deferrals do not.

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