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SEP-IRA, Individual-401K, Backdoor Roth: Contribution & Conversion Questions

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  • jfoxcpacfp
    replied




    Thanks Johanna!

    So just to make sure I am understanding this correctly, if I contributed ~$8k into my residency-sponsored defined contribution plan for this year and made ~$12,000 in 1099 income from moonlighting, I can:

    1) Still contribute $10k into my 401k at my new job

    2) Contribute $3k into a solo-401k ($12000 x 0.25)

     

     
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    1. Yes

    2. You can contribute $2,400 ($12,000 x .20), the limit if you are self-employed

    Leave a comment:


  • PNWskindoc
    replied
    Thanks Johanna!

    So just to make sure I am understanding this correctly, if I contributed ~$8k into my residency-sponsored defined contribution plan for this year and made ~$12,000 in 1099 income from moonlighting, I can:

    1) Still contribute $10k into my 401k at my new job

    2) Contribute $3k into a solo-401k ($12000 x 0.25)

     

     

    Leave a comment:


  • jfoxcpacfp
    replied




    At the risk of drifting too far off-topic, the “poor performance” is based on a period of years and relative to other investments I have. If you knew the specifics, I am pretty sure you would agree. I have recently taken some steps to rectify the situation, but only time will tell. Again I appreciate all of the suggestions, you’ve given me a lot to think about!
    Click to expand...


    I was referring to your comment that you "recently reshuffled" but if the 401k options themselves are performing poorly across all participants' portfolios, you're correct, that's another story entirely. Good luck!

    Leave a comment:


  • jfoxcpacfp
    replied




    Newbie question here: from my understanding, you can only contribute 25% of your SE income into your solo 401k, correct? So even if we try to get some SE income unless it’s a significant amount, it might not be worth the trouble of opening one? In addition, what if some of your moonlighting income is paid by a w2? I don’t get any benefits from this employer. Would that income not be eligible for a solo 401k?

    Also, if your current 401k from your w2 job has terrible investment options and you also happen to have a solo 401k from moonlighting as a resident, are you able to transfer your funds from your employer sponsored 401k to your solo 401k while you’re still working at the w2 job? Or can you only transfer after you leave the job?

    Thanks!
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    1. The overarching reason to have a SOLO-k is to create a parking spot for your 401k rollout when you leave your current job. The other choice is to roll out to an IRA, which would leave you with a taxable backdoor Roth IRA, which you want to avoid.

    2. You cannot use W2 income as the basis to contribute to a SOLO-k.

    3. Unless you have a very unique plan that allows in-service rollovers, you cannot move your 401k while you are still employed at the job offering it.

    Leave a comment:


  • PNWskindoc
    replied
    Newbie question here: from my understanding, you can only contribute 25% of your SE income into your solo 401k, correct? So even if we try to get some SE income unless it's a significant amount, it might not be worth the trouble of opening one? In addition, what if some of your moonlighting income is paid by a w2? I don't get any benefits from this employer. Would that income not be eligible for a solo 401k?

    Also, if your current 401k from your w2 job has terrible investment options and you also happen to have a solo 401k from moonlighting as a resident, are you able to transfer your funds from your employer sponsored 401k to your solo 401k while you're still working at the w2 job? Or can you only transfer after you leave the job?

    Thanks!

    Leave a comment:


  • OneSizeFitsAll
    replied
    At the risk of drifting too far off-topic, the "poor performance" is based on a period of years and relative to other investments I have. If you knew the specifics, I am pretty sure you would agree. I have recently taken some steps to rectify the situation, but only time will tell. Again I appreciate all of the suggestions, you've given me a lot to think about!

    Leave a comment:


  • jfoxcpacfp
    replied




    I appreciate everyone’s input. It may have been clearer if I had included the reason for wanting to open the Solo-401k. I am trying to “get rid” of my SEP-IRA in order to do a “backdoor” Roth. The simplest solution would be to just roll it into my current employer’s 401k. However that 401k has been performing poorly. I recently reshuffled the portfolio for that 401k, but it is yet to be seen if its performance will improve significantly. The SEP-IRA in its current form has been doing relatively well. I just don’t want to put even more money into the poorly performing 401k at this point.
    Click to expand...


    From what I understand, the "poor performance" is only your short-term measurement. Checking performance in the short term is like constantly checking your gas mileage performance every mile of a long road trip. Much depends upon where you start out. There is no way to get a true measurement without traveling a much longer distance. This plays out every day with clients who have similar portfolios but bought into the market only a day, week, or month apart.

    Otoh, if your portfolio is not properly balanced, managed, and periodically rebalanced, even time will not cure the problem. This can be accomplished even with actively managed funds. If that is the problem, I suggest you correct the imbalance. There are numerous posts here at WCI with good suggestions.

    Leave a comment:


  • litovskyassetmanagement
    replied




    I appreciate everyone’s input. It may have been clearer if I had included the reason for wanting to open the Solo-401k. I am trying to “get rid” of my SEP-IRA in order to do a “backdoor” Roth. The simplest solution would be to just roll it into my current employer’s 401k. However that 401k has been performing poorly. I recently reshuffled the portfolio for that 401k, but it is yet to be seen if its performance will improve significantly. The SEP-IRA in its current form has been doing relatively well. I just don’t want to put even more money into the poorly performing 401k at this point.
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    I totally get it, I've done this before for clients, but in all cases they had a legitimate 1099 income. I'm not sure I understand what you mean by poorly performing.  If your 401k has access to low cost index funds and has no other asset-based fees, you can design a portfolio to get the market return (minus expense ratios).  If your 401k has a bunch of actively managed funds, then of course you don't want to roll your SEP into that.

    Alternatively, you can keep your SEP where it is and invest in a Traditional IRA without converting to Roth.  When you are able to roll the SEP over into another plan, then you can convert to Roth.  Other than that, I don't see a burning reason to do so.

    Leave a comment:


  • OneSizeFitsAll
    replied
    I appreciate everyone's input. It may have been clearer if I had included the reason for wanting to open the Solo-401k. I am trying to "get rid" of my SEP-IRA in order to do a "backdoor" Roth. The simplest solution would be to just roll it into my current employer's 401k. However that 401k has been performing poorly. I recently reshuffled the portfolio for that 401k, but it is yet to be seen if its performance will improve significantly. The SEP-IRA in its current form has been doing relatively well. I just don't want to put even more money into the poorly performing 401k at this point.

    Leave a comment:


  • jfoxcpacfp
    replied




    Hello,

    I am new to the forum and have a quick question. I apologize if this has already been addressed elsewhere.

    I have a SEP-IRA that I have contributed to in the past few years. I would like to open a Solo-401k and roll-over the SEP balance into the Solo-401k. However it looks like I will not have any self employment income for this year (2016). Can I still open the Solo-401k for purposes of rolling over the SEP balance into it? I will not be attempting to make any other contribution to the Solo-401k (unless my situation changes and I do end up with some self-employment income for this year).

    Thanks in advance.
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    You must have some SE income but it doesn't have to be a great amount. Give a speech, sell some stuff on eBay or Craigslist, find a creative way to be paid via 1099, take call for another group (if allowed under your contract), do some physician surveys, etc.

    Leave a comment:


  • jfoxcpacfp
    replied




    Hello,

    I am new to the forum and have a quick question. I apologize if this has already been addressed elsewhere.

    I have a SEP-IRA that I have contributed to in the past few years. I would like to open a Solo-401k and roll-over the SEP balance into the Solo-401k. However it looks like I will not have any self employment income for this year (2016). Can I still open the Solo-401k for purposes of rolling over the SEP balance into it? I will not be attempting to make any other contribution to the Solo-401k (unless my situation changes and I do end up with some self-employment income for this year).

    Thanks in advance.
    Click to expand...


    You must have some SE income but it doesn't have to be a great amount. Give a speech, sell some stuff on eBay or Craigslist, find a creative way to be paid via 1099, take call for another group (if allowed under your contract), do some physician surveys, etc.

    Leave a comment:


  • jfoxcpacfp
    replied




    Interesting. I’m curious as to how unrelated of a gig are we talking about? Mowing your neighbors yard for pay? Babysitting? Selling things on Amazon or Ebay? Etc.?
    Click to expand...


    It must qualify as self-employment income. This article was written from the perspective of trying to limit SE income, as that is the typical motivation for these kinds of questions. Zacks describes the difference between SE and unearned income a bit better. You should be aware that any deductions you have against that income will reduce the income available for determining how much you can contribute to your retirement account. iow, your net income from your independent contractor work is the determinant.

    Leave a comment:


  • litovskyassetmanagement
    replied




    Interesting. I’m curious as to how unrelated of a gig are we talking about? Mowing your neighbors yard for pay? Babysitting? Selling things on Amazon or Ebay? Etc.?
    Click to expand...


    I don't think there is an IRS requirement that limits the type of income, as long as it is 'active' income that you earn by doing something.

    Leave a comment:


  • OneSizeFitsAll
    replied
    Interesting. I'm curious as to how unrelated of a gig are we talking about? Mowing your neighbors yard for pay? Babysitting? Selling things on Amazon or Ebay? Etc.?

    Leave a comment:


  • litovskyassetmanagement
    replied
    There are many ways in which you can get 1099 income.  Literally, getting a single gig that someone pays you would qualify as income.  It does not have to be related to medicine either!  Even if someone does not give you an actual 1099, that's still self-employment income you can claim (as long as you can document it).

    Leave a comment:

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