to Back Door ROTH via LLC or W-2

[apalma002]

Thanks for all the wonderful information on the forum and the book.

 

I have a question in regards to the traditional IRA conversion to Roth. I work for both employer & 1099

 

Some basics. I work for as an employee (W-2) for an ER group in Miami, FL and also participate in some 1099 locums assignments. I have a LLC for my locums, which I am the only agent on the company. I am single. I max out my employee 401K. I rolled over all my previous employer’s 401k to my existing 401k. I have NO IRA at this time. I am 39, and way behind on retirement….Hence the help from this forum will help me not depend on social security. I have been allocating my 1099 income to help pay down the high interest student loans and the remaining I want to contribute to retirement. Cars are paid off…but I did splurge on a boat (shame on me!). I do have some equity and debt in my real-estate.

 

Numbers:

Salary (w-2): $340k/year

1099: ~$60K/year

Pension: ~$20K

401k: $134k, with max annual contribution

HSA: $17k; maxed out as with a domestic partner.

Student loans: $141k ($96k at ~2.7%, $33k at 5% & $10k at 4%)

Boat: $72k at 4.2%

IRA/Roth: nada!

 

Questions:

1. How do I contribute to my traditional IRA: Can the LLC contribute (from its earnings) the $5,500 or do I personally contribute from my income? I ask, because if the LLC contributes, it can be a deduction to the LLC’s profits and not a draw to me. Or do I have to contribute personally and claim the $5500 as 1099-income.


2. I have an extra $10k from an old non-interest bearing savings account, should I contribute (open a Vanguard brokerage account) to post-tax investment account or pay down some debt. PS I hate debt, but also love that dam boat.


3. Can my LLC contribute higher amount or in addition to the $5500 of the traditional IRA using a SEP or solo- 401k? PS: my employer (W-2) does not allow additional contributions.


4. Any other suggestions…..Thank you!!!

 

 

 

[jfoxcpacfp]

1. An IRA is an "individual" retirement account. No matter what bank account you use to write the check, it will be treated as such.
   
   
   
   • You cannot deduct your IRA on your LLC or anywhere else because you earn too much and have a 401k at your day job.
   
   
   
   


2. Don't know your goals and priorities. Do you have adequate disability insurance? Other short-term goals? Otherwise, pay down some debt.


3. You can set up a solo-401k and contribute 20% of your net profits from locums. (Wish you had found this site before rolling over your other 401k to your employer's plan, as you could have rolled it over to your solo-k.)
   
   
   
   • If you had 1099 income for 2016, you have until 10/15/17 to fund a SEP for 2016. If you've already filed your 1040, you can file an amended return.
   
   
   
   


4. With respect, you are 39, making $400k/yr, and have prioritized spending over paying down debt and saving for retirement. Still have plenty of time and income to right the ship (pun intended) but financial planning would be really beneficial to get you on track. A relationship with an experienced CPA wouldn't hurt, either.

[apalma002]

Thank you for the lightening response.  My fiancée & I have been battling this topic for 3 years and still have difficulty really grasping the fundamentals. 

 

In response to your comments.

 

1. Thank you. 

2. I have disability insurance (for specific own occupation) and a term life. I continue to pay down the debt of my high interest rate loans.

3.  If I set up a solo-401k, I can contribute 20% of my NET profits from my LLC.

Example: estimate net profits of $50K will allow me to contribute $10k, correct? My maximum contribution is CUMULATIVE to total $54k/year (including my employer 401k & my solo-401k), correct?

      3.a: I did earn 1099-income from 2016. How much are you allowed to contribute to the SEP? Once contributed, how soon do I covert this to a Roth IRA?

Moving forward, I should then contribute my $5500 to traditional IRA then perform the conversion to the Roth and max on a Solo-401k?

I have a great CPA, but I believe retirement is not his forte and maybe would be worth discussing my options with another CPA. Have any recommendations?

[jfoxcpacfp]

1. You're welcome 


2. Wonderful but just make sure you have plenty of term for both spouses. It matters!


3. Your max contribution to your solo-k is non-inclusive of your "day job" 401k. So you can contribute a full $54k if you earn enough to do so.


4. (3a) You can contribute 20% of your net IC income to your SEP IRA, but not more than $54k.

I guess your last question is a joke (?) Of course, I would recommend our firm but there are other good options out there.

Good luck!