Maximum Retirement Contributions

[parkerbassett]

My group has as 401k/Profit sharing plan.  For all the partners a 54K (maximum allowed) contribution is made annually.  Our current office manager believes that we are unable to have any sort of IRA contribution in addition to that.  For example can I take the 54K contribution to my 401K and then also do a back door ROTH IRA?  I've found the following on the IRS website but don't see that it specifically addresses this issue.

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

Remember that annual contributions to all of your accounts - this includes elective deferrals, employee contributions, employer matching and discretionary contributions and allocations of forfeitures to your accounts - may not exceed the lesser of 100% of your compensation or $55,000 for 2018 ($54,000 for 2017). In addition, the amount of your compensation that can be taken into account when determining employer and employee contributions is limited. The compensation limitation is $275,000 in 2018 ($270,000 in 2017)

[Dr. Mom]

Yes you can...

Who Can Open
a Traditional IRA?

You can open and make contributions to a traditional IRA if:

You (or, if you file a joint return, your spouse) received taxable compensation during the year, and

You were not age 70 1/2 by the end of the year.

You can have a traditional IRA whether or not you are covered by any other retirement plan. However, you may not be able to deduct all of your contributions if you or your spouse is covered by an employer retirement plan.

Excepted from:

https://www.irs.gov/pub/irs-pdf/p590a.pdf

 

[Peds]

it might be how you worded the question to your office manager. but they are wrong, you can have an IRA separately.

you make too much to deduct a tIRA. and you make too much to contribute to a rIRA.

but you can do a backdoor rIRA.

[Molar Mechanic]

Peds has the correct answer.  Your employer accounts are independent of your IRA/rIRA/bdrIRA.

Put all you can into the retirement accounts, as they are tax deferred, and I'm assuming that if you can put 60k annually into saving, your tax bracket sucks.  If you have more to invest, add $5,500 for you, and $5,500 for your spouse into a non-deductible IRA.

There are multiple types of IRAs, but for these concerns, there are traditional IRA (tax deferred like your 401k, income limited -- you cannot do this), Roth IRA (after tax contribution, tax free growth, income limited - you cannot do this either) and the non-deductible IRA.  I'm honestly not sure the advantage of a non-deductible IRA (protected from debtors?), but that won't matter for you.  What you want to do is take that $5,500 (or $5,500 x2) that we put into the non-deductible IRA and convert that into a Roth IRA. Roth IRA conversions are not income limited.  This is going to allow you to add after tax money (that would be taxed regardless) into your Roth IRA, where it can be allowed to grow and be withdrawn tax-free.  This somewhat clunky but completely legal process is known as a Backdoor Roth IRA.  WCI has a tutorial that explains it better than I can.

 

Very Significant -- If you have any other IRA (don't worry about Roths), your backdoor money is essentially diluted into the total IRA money and some taxes would be owed. The solution here is to move that IRA money into non-IRA accounts (401k, TSP, other?)

[nachos31]

Molar Mechanic wrote:

Your employer accounts are independent of your IRA/rIRA/bdrIRA.

Click to expand...

Everyone above is correct in telling you that you can do it. Like MM above stated, the 401k is an employer account and is independent of your IRA because the IRA stands for "Individual Retirement Arrangements" (most say the "A" stands for "Accounts," which does not change the meaning but is not technically correct: see https://www.irs.gov/forms-pubs/about-publication-590a). You can always fund some type of IRA since it's individual and separate from your employer-based accounts, but you may not always gain any benefit or preferential tax treatment based on your income, etc. That being said, you can definitely do a backdoor Roth IRA in order to get the tax benefits of the Roth arrangement. Just make sure you don't have any accounts that would make you subject to the pro-rata rule--see: https://www.whitecoatinvestor.com/backdoor-roth-ira-tutorial/