Mega backdoor Roth solo 401k question

[GasFIRE]

As a relatively new WCI forum member I am intrigued by the Mega backdoor Roth idea I've learned about here. I currently have 3 buckets of assets: taxable, pre-tax solo 401k, and Roth (both solo 401k and IRA). I am currently pre-retirement, working part-time receiving 1099 income. Every year I max contribute to my Roth solo 401k and do the backdoor Roth IRA, but do no pre-tax contributions. If possible, I am interested in using the mega backdoor Roth idea to essentially convert some of my taxable assets into Roth funds.

My questions are as follows: 1) Who has solo 401k plans that allow both after-tax contributions and in-service withdrawals? My pre-tax solo 401k is with Fidelity and they allow neither.  2) If I open another solo 401k plan that allows the above, can I use it and only contribute after-tax money, i.e. I have no plans to contribute pre-tax money into my solo 401k.  3) If I do the after-tax contributions, do I have to have the income level allow this? For example, if I earn $50K, put $24.5K into the solo Roth 401k, $6.5K into a backdoor Roth IRA, can I max contribute $36.5K ($61K - $24.5K) or do I have a lower limit?

[spiritrider]

There are contradictions in your post.

You state; "Every year I max contribute to my Roth solo 401k and do the backdoor Roth IRA, but do no pre-tax contributions." Then you state; "My pre-tax solo 401k is with Fidelity." Which is it.

1. No mainstream providers offer after-tax contributions and in-service rollovers. You will need a smaller third-party administrator (TPA) and it will not come free.


2. An employer can not have more than one 401k plan that applies to the same employee. You can have one 401k plan and more than one custodian.


3. There is an annual addition limit for each unaffiliated employer. This is the sum of employee + employer contributions. This can not exceed the lessor of $55K for 2018 or 100% of compensation. Catch-up contributions are not included
   
   
   
   • Your maximum after-tax contribution = net self-employment earnings - employee deferrals - employer contributions. $50K business profit ~= $46,500 net self-employment earnings - $18,500 employee deferrals ~= $28,000 after tax contributions + $6000 catch-up contribution. $52,500 total 401k contributions.
   
   
   • Roth employee deferrals, after-tax contributions and Roth catch-up contributions do not reduce compensation available for IRA contributions.
   
   
   • They also do not reduce net self-employment earnings available for the self-employed health insurance deduction.
   
   
   
   

 

 

 

[jfoxcpacfp]

GasFIRE wrote:

1) Who has solo 401k plans that allow both after-tax contributions and in-service withdrawals? My pre-tax solo 401k is with Fidelity and they allow neither.

Click to expand...

spiritrider wrote:

No mainstream providers offer after-tax contributions and in-service rollovers. You will need a smaller third-party administrator (TPA) and it will not come free.

Click to expand...

GasFIRE, if you would like the name of the TPA we refer our clients to, please message me. Reasonable costs and knows her stuff.

[GasFIRE]

Thanks spiritrider, jfoxcpacfp for the replies. My terminology may have been sloppy since I’m learning as I go with these solo plans. For clarification, I was previously in a large group practice. When I left I rolled over my 401k retirement plan into an IRA. Since I had been doing the backdoor Roth already, I got caught by the pro-rata rule the year I left - oops. Because I now have a part time position with 1099 income, I got an EIN and opened a solo 401k at Fidelity and moved my IRA into this. I have not funded this account other than the initial IRA transfer.

Three years ago I learned of the existence of the Roth 401k. Fidelity does not do solo Roth 401k’s so I had to look for another company. I ended up opening a solo Roth IRA at T Rowe Price. So that’s how my Roth and non-Roth solo 401k’s ended up at different firms though under the same EIN.

I remain interested in the mega backdoor Roth as a way to move taxable assets into the Roth bucket. While I’m disappointed this isn’t available via the solo plans, I will check out using a TPA to facilitate this.

[spiritrider]

GasFIRE wrote:

Three years ago I learned of the existence of the Roth 401k. Fidelity does not do solo Roth 401k’s so I had to look for another company. I ended up opening a solo Roth IRA at T Rowe Price. So that’s how my Roth and non-Roth solo 401k’s ended up at different firms though under the same EIN.

Click to expand...

Another clarification.

When you completed your T. Rowe Price's Individual 401k adoption agreement you should have done so as an amendment from your Fidelity Self-Employed 401k. Then you should have transferred all assets from Fidelity to T. Rowe Price and closed the Fidelity Self-Employed 401k account.

If you did not do this it is a 401k plan error to maintain more than one 401k from the same employer covering you.