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  • SEP to solo 401k with MBD Roth….

    Background. For years I worked as independent contractor In the ER. I set up and LLC taxed as a C Corp and opened a SEP IRA. Maxed it out each year. I am the only employee.
    In 2013 transitioned to employee position that offered a 403b with employer match. I kept my LLC and SEP for all moonlighting activities. My current SEP trustee / bank allows all approved SEP investments and I have multiple rental properties and equities in the SEP. I have talked to my custodian and the trust dept VP for my SEP and they are open to me doing a solo 401 k with MBDR if I can get a plan document for them to work off of. They do not currently offer solo 401k with MBDR themselves.
    so… with Joe Manchin being a NO on BBB….

    Am I better off keeping with the SEP or trying to do a solo 401k with MBR ???

    If answer yes can I roll my SEP into the before tax employee portion of the 401 k once established ???

    Also where is the best place to get written plan for a solo 401k with MBDR ??

    I know that my employee contribution before tax will be limited by what ever I place into the 403b at full time job but I’m looking at the employer profit sharing being the same at what I can do with my SEP and also the advantage of the after tax component and MBDR.

    thanks to everyone In advance for their thoughts.
    Last edited by Hogfanmd; 12-19-2021, 11:03 AM.

  • #2
    Originally posted by Hogfanmd View Post
    Background. For years I worked as independent contractor In the ER. I set up and LLC taxed as a C Corp and opened a SEP IRA. Maxed it out each year. In 2013 transitioned to employee position that offered a 403b with employer match. I kept my LLC and SEP for all moonlighting activities. My current SEP trustee / bank allows all approved SEP investments and I have multiple rental properties and equities in the SEP. I have talked to my custodian and the trust dept VP for my SEP and they are open to me doing a solo 401 k with MBDR if I can get a plan document for them to work off of. They do not currently offer solo 401k with MBDR themselves.
    so… with Joe Manchin being a NO on BBB….Good news. Hope he maintains that stance in 2022.

    Am I better off keeping with the SEP or trying to do a solo 401k with MBR ???Solo 401k, besides the MBDR, BDR can also be done if SEP rolled into 401k.

    If answer yes can I roll my SEP into the before tax employee portion of the 401 k once established ???Yes

    Also where is the best place to get written plan for a solo 401k with MBDR ??I recommend using a TPA especially since you’ll also need a self-directed account for real estate holdings.

    I know that my employee contribution before tax will be limited by what ever I place into the 403b at full time job but I’m looking at the employer profit sharing being the same at what I can do with my SEP and also the advantage of the after tax component and MBDR.

    thanks to everyone In advance for their thoughts.
    -

    Comment


    • #3
      I have no idea why an independent contractor would benefit from a C-Corp. Not to mention in 2013, if your 403b employed position's W-2 SS wages + your C-Corp's W-2 SS wages were/are greater than the SS maximum taxable earnings (2021 = $142, 800). You almost certainly were paying more in net payroll taxes than you would SE taxes as a sole proprietor/unincorporated single member LLC.

      You are running very short to be able to get this done for 2021. If you were self-employed, you could amend your plan and make employee after tax contributions any time before your tax filing date including extensions. W-2 employee's contributions must be deducted from compensation with a pay date no later than 12/31.

      With that said, if your custodian and trust department VP work with or know of a reasonably priced competent third party administrator. My suggestion would be to get a one-participant 401k plan document/adoption agreement supporting the MBDR directly from Ascensus. All the website purveyors of one-participant 401k plan/adoption agreement supporting the MBDR are primarily just resellers of Ascensus products. You might as well go directly to who is actually writing the plan document.

      Critical NOTE: If you have already made SEP IRA contributions to a 5305-SEP for 2021, you can not adopt a 401k plan for the same tax year. You can only do so if you have a prototype or individually designed (unlikely) SEP IRA plan.

      Comment


      • #4
        Originally posted by spiritrider View Post
        I have no idea why an independent contractor would benefit from a C-Corp. Not to mention in 2013, if your 403b employed position's W-2 SS wages + your C-Corp's W-2 SS wages were/are greater than the SS maximum taxable earnings (2021 = $142, 800). You almost certainly were paying more in net payroll taxes than you would SE taxes as a sole proprietor/unincorporated single member LLC.

        You are running very short to be able to get this done for 2021. If you were self-employed, you could amend your plan and make employee after tax contributions any time before your tax filing date including extensions. W-2 employee's contributions must be deducted from compensation with a pay date no later than 12/31.

        With that said, if your custodian and trust department VP work with or know of a reasonably priced competent third party administrator. My suggestion would be to get a one-participant 401k plan document/adoption agreement supporting the MBDR directly from Ascensus. All the website purveyors of one-participant 401k plan/adoption agreement supporting the MBDR are primarily just resellers of Ascensus products. You might as well go directly to who is actually writing the plan document.

        Critical NOTE: If you have already made SEP IRA contributions to a 5305-SEP for 2021, you can not adopt a 401k plan for the same tax year. You can only do so if you have a prototype or individually designed (unlikely) SEP IRA plan.
        When I set up the c Corp format in 2004 I was encouraged to do so by my account due to the fringe benefits and health insurance and out of pocket expense deductions. Said would work better then S Corp or schedule C. I’ve just been lazy about dissolving it I guess.

        Comment


        • #5
          Originally posted by Hogfanmd View Post

          When I set up the c Corp format in 2004 I was encouraged to do so by my account due to the fringe benefits and health insurance and out of pocket expense deductions. Said would work better then S Corp or schedule C. I’ve just been lazy about dissolving it I guess.
          Impo, this was bad advice, circa 1970-ish. S-corps were really becoming popular in 1980s. I think we have 1 client who is still stuck with a C-corp. Given that you use it for moonlighting only, you would have no or low receivables, and there will be no real tax penalty to dissolve the corp and then the LLC. Your setup is way too complex to be beneficial.

          The problem today with C-corps for groups is that professional practices are almost universally cash basis. If they decide to make an S-election, which is the structure that 98% of practices use today, they must pay tax on all receivable as if they had been collected at moment of S-election, which can be a significant tax acceleration. In addition, if the corp has an NOL carry forward, it is lost at dissolution. S/n/b an issue for you - get rid of the corp, no need for LLC, either, and and you will save on expenses. With a day job that is W2 for another employer, you’re no longer even using the bene’s is my guess.

          spiritrider has given his perennially excellent advice regarding your retirement plan q’s.
          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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