Research into solo 401k with intent for mega backdoor roth

[saildawg]

I don't think there's a "correct" answer. I would say though, deferring tax when in the highest tax bracket is almost never a bad thing.

Also have to factor in whether the deduction gets you under any cliffs. Child tax credit phaseout range. Bump range for LTCGs. AMT territory. etc.

Good points for sure, I guess in my mind $1 pretax vs $1 roth is a no brainer, but $1 pretax vs $2 roth is more challenging to figure out.

[Lithium]

I emailed him a month ago and received an email with an invoice for yearly maintenance for 2020, I paid it, and did not hear back. I emailed him again yesterday 2/7/20 about the 1099-r. I am waiting to hear back, in the past has been very responsive, I'll wait it out a few days but will call if haven't heard anything

I did reach him on the phone today. He says they don't prepare the 1099-R.

[jacoavlu]

I emailed him a month ago and received an email with an invoice for yearly maintenance for 2020, I paid it, and did not hear back. I emailed him again yesterday 2/7/20 about the 1099-r. I am waiting to hear back, in the past has been very responsive, I'll wait it out a few days but will call if haven't heard anything

I did reach him on the phone today. He says they don't prepare the 1099-R.

interesting. That would be one point of differentiation between "discountsolo401k.com" and "mysolo401k.net" .

Mysolo401k.net will prepare the 1099-R.

[Lithium]

interesting. That would be one point of differentiation between "discountsolo401k.com" and "mysolo401k.net" .

Mysolo401k.net will prepare the 1099-R.

Do you know if MySolo401k will do the 5500-EZ? That one is more painful. Though still not that bad.

[saildawg]

I did reach him on the phone today. He says they don't prepare the 1099-R.

Thanks was planning to call later today, I wonder why his email replys have been lacking as of late. When it comes time to fill out 1099-r I'll post it here.

[jacoavlu]

Do you know if MySolo401k will do the 5500-EZ? That one is more painful. Though still not that bad.

I do not know but I will find out. I'm not at that point yet.

[Lithium]

Honestly if I hadn't called him and asked to pay my annual fee I don't think anything would have happened. I know it is only $100 a year but it doesn't seem like they (he? might be a one man operation) have to do much of anything after they design the plan. I guess theoretically they're available to amend the plan if legislation changes.

I wonder what we do if he decides the business isn't profitable or for whatever other reason it doesn't survive. Might another one of these one-stop shops accept the plan? Food for thought.

[jacoavlu]

Do you know if MySolo401k will do the 5500-EZ? That one is more painful. Though still not that bad.

they confirmed that they will prepare the 5500.

[saildawg]

Honestly if I hadn't called him and asked to pay my annual fee I don't think anything would have happened. I know it is only $100 a year but it doesn't seem like they (he? might be a one man operation) have to do much of anything after they design the plan. I guess theoretically they're available to amend the plan if legislation changes.

I wonder what we do if he decides the business isn't profitable or for whatever other reason it doesn't survive. Might another one of these one-stop shops accept the plan? Food for thought.

Yes that thought has crossed my mind before as well. I doubt another one stop shop would be incentivized to accept the plan.

[jacoavlu]

I wonder what we do if he decides the business isn't profitable or for whatever other reason it doesn't survive. Might another one of these one-stop shops accept the plan? Food for thought.

your plan is your plan. It doesn't cease to exist of the document provider goes away. There would be nothing to do. But you would have no backup.

[spiritrider]

your plan is your plan. It doesn't cease to exist of the document provider goes away. There would be nothing to do. But you would have no backup.

I'm not sure if that is true. These small document providers are reselling/licensing/restating other plans. The are not writing their own plans. Even if they were, they would go out of date very quickly.

If such a provider were to go out of business, it would still remain your plan, but you would probably want to amend the plan to a different document provider.

[WCI Fan]

Bear with me experienced WCI gurus. I just joined the forum due my extreme interest in the MBDR concept. I have tried to digest the great info posted, but am still not sure how it all fits together particularly from a taxation standpoint.

Here's my situation. Am over 50, have made too much to do an individual Roth for many years and just recently my wife's employer plan added a Roth option that she is maxing out. I just became semi-retired and now have no employees and want to start a Roth soloK. I have the flexibility to pay myself either W2 wages or all 1099 income or a mixture of the two. My wife works in the business and I can shift reasonable 1099 income to her as needed.

I played with The Finance Buff's calculator and discovered that the "sweet spot" for compensation from self employment is either $57K per year in which the results are $26K salary deferral, $14,240 profit sharing, and $23,250 non-Roth after tax contributions for a total of $63,500. Alternatively, using self employment income of $60K, the results are $26K salary def, $15K PS, and $22,500 non-Roth after tax for a total of $63,500.

For sure, a small difference between the two, but which option is best, to maximize PS or non-Roth after tax contributions? Is the PS portion subject to FICA? Both are post income tax, but I assume that the non-Roth after tax contributions must come from FICA taxed W2 wages or can 1099 income be used to fund the non-Roth to avoid the FICA tax? I do not understand how I can set compensation from self employment at either $57K or $60K with both calculations then coming to a total contribution allowed of $63,500 which is more than the compensation. Putting the SE compensation at any amount greater than $57K simply shifts more to the PS and less to the non-Roth after tax maximums. I guess I am not understanding the "origin" of the non-Roth after tax contributions. Could someone enlighten me?

[saildawg]

OK here is a summary of my first year technically 2019 fiscal year with solo 401k.
2019 earning (note contributions made in 2020 after books were closed)
Net income $41,666
Profit sharing $8,222
After tax voluntary contributions $24,665 ------> in plan rollover to Roth 401k (aka MBDR) $24,665

I filled out and efiled 1099-r in January 2021 for the 2020 In plan roth conversion
Using Harry's instructions

So that's a wrap on 2019, now onto 2020 waiting to close my books. Going forward I will not be eligible to do this anymore as I am now going solo and owning my own practice, so no longer a W2 with 1099 side gig income. Someone else will have to carry the torch. I hope I have inspired some people to use this tax strategy as I am sure future saildawg and his heirs will be happy with more roth tax free growth.

[ChicSkiier]

OK here is a summary of my first year technically 2019 fiscal year with solo 401k.
2019 earning (note contributions made in 2020 after books were closed)
Net income $41,666
Profit sharing $8,222
After tax voluntary contributions $24,665 ------> in plan rollover to Roth 401k (aka MBDR) $24,665

I filled out and efiled 1099-r in January 2021 for the 2020 In plan roth conversion
Using Harry's instructions

So that's a wrap on 2019, now onto 2020 waiting to close my books. Going forward I will not be eligible to do this anymore as I am now going solo and owning my own practice, so no longer a W2 with 1099 side gig income. Someone else will have to carry the torch. I hope I have inspired some people to use this tax strategy as I am sure future saildawg and his heirs will be happy with more roth tax free growth.

Saved this thread so I could learn from your ways/explanations...set up solo401K last year with a TPA and hope to get the ball rolling to contribute to profit sharing and after tax contributions . Thanks so much for the helpful discussion, insight and tips.

[steve2323]

hi does anyone have access to the finance buff calculator where you can run the numbers of how much one can contribute to mega-backdoor roth ira with 1099.

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