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Logistics and taxes around solo 401k contributions

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  • Logistics and taxes around solo 401k contributions

    I opened one for the first time last year. After contributing the max to my 403b plan at my W-2 job, I wanted to give myself some "employer" contributions in my solo 401k. I made around 55k with my side-gig income, and contributed about 10k in employer contributions. I believe this is allowed under current contribution limits.

    Now, the whole process of doing that left me with a lot of questions. I opened up the solo 401k at TD Ameritrade and was told to "fund" it I simply wire in money from an outside checking account. This is exactly what I did. The funds did not come directly from my locums agency and at no point did I characterize the contributions as traditional vs Roth contributions (and when I asked TD they said that that's not something I do with them), or as employer vs employee contributions.

    Now as I do my taxes I have a lot of questions. On FreeTaxUSA one of the prompts asks "Do you have a SEP, SIMPLE, or other self-employed qualified retirement plan?" which I answered yes as I believe the 401k fits under this. The next question prompt is "Enter your 2021 deductible contributions to your Keogh, SIMPLE, or other plan"

    I would imagine that this is where I enter the 10k number (I want it to be a traditional contribution not Roth) but it strikes me odd that there is no further clarification with either TD Ameritrade or the rest of the tax forms about whether this 10k is employee/employer or traditional/Roth contributions. If anyone can help me resolve this confusion that would be appreciated.

  • #2
    I had the paperwork for TD set up but then went with Vanguard just to keep all my accounts together and easy. I recall TD having 2 separate applications; 1 for traditional and 1 for Roth. Can you go back and see which application you submitted?

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    • #3
      • Maximum one-participant 401k contributions are based on your self-employed earned (net earnings from self-employment) = business profit - 1/2 SE tax.
      • Maximum employer contributions = self-employed earned income * 20%.
      • Employer contribution must be made to the traditional pre-tax account.
      • I don't know how TD Ameritrade mechanizes this.

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      • #4
        I have a TDA 401k trust retirement account for my custom plan. While not the same as their standard platform, MartinV is correct that their are 2 separate applications if you want the Roth option. If your tax form doesn't designate it as Roth it isn't Roth. You are the trustee so you are responsible for making sure the correct contribution limits are adhered to. TDA doesn't know you maxed out your 403b at your W-2 position or if there is any match contributions. Realistically, the TDA solo 401k can only have employER contributions since max employEE contributions are made to your 403b plan.

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        • #5
          • Profit sharing contributions cannot go into a Roth 401k.
          • The custodian leaves it up to the tax preparer to characterize a contribution as “er” or “ee”
          fwiw - TDA announced yesterday that they will no longer allow Roth 401ks. I got this news second-hand from my ptr and don’t know yet what the effective date is, but anyone with Roth 401k accounts may be asked to move them or roll them out.
          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 jfoxcpacfp View Post
            fwiw - TDA announced yesterday that they will no longer allow Roth 401ks. I got this news second-hand from my ptr and don’t know yet what the effective date is, but anyone with Roth 401k accounts may be asked to move them or roll them out.
            This must be related to being bought out by Schwab. Unfortunate for those who want access to one. I think this only leaves ETrade and VG for the DIY mainstream Roth 401k custodians.

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            • #7
              Originally posted by GasFIRE View Post
              This must be related to being bought out by Schwab. Unfortunate for those who want access to one. I think this only leaves ETrade and VG for the DIY mainstream Roth 401k custodians.
              Geez, Roth 401(k)s don't seem all that complex. It seems crazy that so few mainstream providers offer them for solos and small businesses.

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              • #8
                Originally posted by jfoxcpacfp View Post
                • Profit sharing contributions cannot go into a Roth 401k.
                • The custodian leaves it up to the tax preparer to characterize a contribution as “er” or “ee”
                fwiw - TDA announced yesterday that they will no longer allow Roth 401ks. I got this news second-hand from my ptr and don’t know yet what the effective date is, but anyone with Roth 401k accounts may be asked to move them or roll them out.
                Meaning that I characterize it myself when I prepare my taxes?

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                • #9
                  Originally posted by avv21 View Post

                  Meaning that I characterize it myself when I prepare my taxes?
                  Yes (technically, you characterize it yourself when you contribute). The custodian has no idea about your qualifications to make an employee deferral or employer profit sharing contribution. That is, in the end, up to you and, tangentially, your advisor.
                  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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                  • #10
                    Why in the world are they eliminating the Roth portion of Solo 401(k)s?

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                    • #11
                      TDA was recently bought by Schwab which doesn’t allow Roth 401ks for their solo plan. Probably done in the name of “efficiency”.

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                      • #12
                        Originally posted by jfoxcpacfp View Post

                        Yes (technically, you characterize it yourself when you contribute). The custodian has no idea about your qualifications to make an employee deferral or employer profit sharing contribution. That is, in the end, up to you and, tangentially, your advisor.
                        I see. Kind of weird that, that even on my tax software there's really no option to designate whatever you contribute as an employer or employee contribution to the solo 401k. In the back of my head I think "well since I maxed out my 403b, am I going to get in trouble w/ the IRS if I don't specify it is an employer contribution?"

                        Nevertheless, when the software asks me for my "2021 deductible contributions to my Keogh, SIMPLE, or other self-employed qualified retirement plan", it sounds like I can and should input the amount of funds I sent over to my TD 401k in 2021.

                        Thanks for all your help.

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                        • #13
                          Originally posted by GasFIRE View Post
                          TDA was recently bought by Schwab which doesn’t allow Roth 401ks for their solo plan. Probably done in the name of “efficiency”.
                          Actually it would be an integration issue.
                          The volume of Solo Roth 401k’s was likely small and predicted to remain small.

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