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Currently paralyzed by Backdoor Roth vs Roth IRA & Solo 401Ks, help

Home Retirement Accounts Currently paralyzed by Backdoor Roth vs Roth IRA & Solo 401Ks, help

  • Avatar darknocturnaldream 
    Participant
    Status: Resident
    Posts: 3
    Joined: 01/29/2019

    I’m a graduating resident, so I’ll have half a year of resident salary (~$30K) and half a year of attending salary (???). I’m legitimately not sure if I’ll meet that single filer $139K threshold to be ineligible for Roth IRA.

    1. Is it better to just do the Roth IRA or backdoor Roth in this case?

    2. If I do cross the $139K mark, then what happens in each case?

     

    I’m also moonlighting and opened a solo 401K (Roth and traditional options) in late Dec 2018 but have yet to contribute for the 2018 tax year. I have about $15K 1099 income after deductions. If I calculated it correctly, I think I can contribute all $15K. I’m trying to work for the first time with a tax accountant but she’s not the greatest in answering questions (yea, trying to find another one).

    3. Is it better go to Roth 401K? I work in CA if that matters

    4. How do tax forms work?

    TIA! I’ve just been paralyzed trying to think through all this before I actually do it

    #186228 Reply
    Avatar HandFellow 
    Participant
    Status: Physician
    Posts: 159
    Joined: 01/18/2016

    for year 2019, you will have probably around 30k in resident salary plus you moonlighting plus your attending salary.  You don’t mention your field or what you expect to earn once you sign as an attending.  But if you make 200k per year, that would be like 83k.  It looks like you are going to be close.  So just hold onto the money and make the contribution once you know.  There is a decent chance you are going to be moving, so having some cash on hand will be worthwhile.

    Do you have any other retirement accounts?  If you do, it would likely be your best year to perform a roth conversion, but you need to run the numbers.  If you are going to do the conversion, you will likely be doing the Roth through the backdoor.

    Question 4 is a doozy.  Good luck with that

    #186268 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3335
    Joined: 01/08/2016

    1. Is it better to just do the Roth IRA or backdoor Roth in this case?

    Click to expand…

    yes. but you should also be able to figure out your gross income, AGI, and taxable income.

    2. If I do cross the $139K mark, then what happens in each case?

    Click to expand…

    if you did a backdoor, nothing. if you didnt, re-characterize.

    3. Is it better go to Roth 401K? I work in CA if that matters

    Click to expand…

    maybe, but maybe not anymore. you are an attending in CA.

    4. How do tax forms work?

    Click to expand…

    math.

    or do you mean taxes in general? lots of reading to do….

    #186270 Reply
    Avatar darknocturnaldream 
    Participant
    Status: Resident
    Posts: 3
    Joined: 01/29/2019

    To answer above:

    @handfellow: I’m EM…projecting ~200K pre-tax salary. It’s a “per diem” type schedule (i.e. I pick my shifts, which are guaranteed, and I’ll probably do 8-14/mo depending on life events, boards, etc.) and I’m still moonlighting so I really can’t exactly project the salary to the dollar. I’m not moving far so not too concerned about that aspect. I have a Roth IRA and governmental 457b (until June, which I’ll then rollover)

     

    @peds: Yes to Roth contribution this year I assume?

    I don’t think anyone can recharacterize Roth to traditional based on the new tax laws, so I’m just wondering: if I put in $6000 into Roth but cross the income threshold, then what happens? Is there a penalty? (Or is it just easier to backdoor it and call it a day?)

    I’m not sure what you mean by “maybe, but maybe not anymore. you are an attending in CA.” This is about the $15K I made moonlighting as a resident in 2018 as an IC. Total 2018 gross income ~80K. What percentage of the $15K should one consider putting in a Roth vs traditional solo 401K? I’m late 20s, no kids, no debt.

    When I ask how the tax forms work, I guess what I mean is what forms are needed to file for Solo 401K contributions? I’ve used turbotax in the past…does it have a way for you to write in that you put in 15K for the Solo 401K (whether Roth or not)?

     

    Sorry about the questions and I’m sure they’re really silly. I’m new to this but I promise I’ve been reading.

    #186284 Reply
    ENT Doc ENT Doc 
    Participant
    Status: Physician
    Posts: 2887
    Joined: 01/14/2017

    I’m a graduating resident, so I’ll have half a year of resident salary (~$30K) and half a year of attending salary (???). I’m legitimately not sure if I’ll meet that single filer $139K threshold to be ineligible for Roth IRA.

    1. Is it better to just do the Roth IRA or backdoor Roth in this case?

    2. If I do cross the $139K mark, then what happens in each case?

     

    I’m also moonlighting and opened a solo 401K (Roth and traditional options) in late Dec 2018 but have yet to contribute for the 2018 tax year. I have about $15K 1099 income after deductions. If I calculated it correctly, I think I can contribute all $15K. I’m trying to work for the first time with a tax accountant but she’s not the greatest in answering questions (yea, trying to find another one).

    3. Is it better go to Roth 401K? I work in CA if that matters

    4. How do tax forms work?

    TIA! I’ve just been paralyzed trying to think through all this before I actually do it

    Click to expand…

    Did you contribute to a qualified plan in 2018 when you were in residency – 401k, for example?  You may not be able to contribute all that 15k to a solo 401k.

    Just do the backdoor Roth so you aren’t sweating it.

    I would favor the Roth 401k but I’d need to see more details about current account totals, asset allocation, total marginal tax rate.

    Unless you have an account balance >250k in your 401k you don’t have to file any tax forms specifically for the 401k.  However, you’ll want to keep a record of your contribution form to Vanguard/Fidelity and all your plan documents.  IF you contribute to a traditional 401k and take a deduction you’ll take the deduction on your 1040 Schedule 1, line 28:

    https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

    This is the same form where you’ll take the 1/2 of self-employment tax deduction (from your Schedule SE, which in turn flows from your Schedule C).  The 1040 itself also has an area for the qualified business deduction on line 9:

    https://www.irs.gov/pub/irs-pdf/f1040.pdf

    Follow the form instructions if you’re curious, but with what you’ve stated thus far and with tax filing now starting I’d get professional help.

    #186290 Reply
    Avatar darknocturnaldream 
    Participant
    Status: Resident
    Posts: 3
    Joined: 01/29/2019

    I’m a graduating resident, so I’ll have half a year of resident salary (~$30K) and half a year of attending salary (???). I’m legitimately not sure if I’ll meet that single filer $139K threshold to be ineligible for Roth IRA.

    1. Is it better to just do the Roth IRA or backdoor Roth in this case?

    2. If I do cross the $139K mark, then what happens in each case?

     

    I’m also moonlighting and opened a solo 401K (Roth and traditional options) in late Dec 2018 but have yet to contribute for the 2018 tax year. I have about $15K 1099 income after deductions. If I calculated it correctly, I think I can contribute all $15K. I’m trying to work for the first time with a tax accountant but she’s not the greatest in answering questions (yea, trying to find another one).

    3. Is it better go to Roth 401K? I work in CA if that matters

    4. How do tax forms work?

    TIA! I’ve just been paralyzed trying to think through all this before I actually do it

    Click to expand…

    Did you contribute to a qualified plan in 2018 when you were in residency – 401k, for example?  You may not be able to contribute all that 15k to a solo 401k.

    Just do the backdoor Roth so you aren’t sweating it.

    I would favor the Roth 401k but I’d need to see more details about current account totals, asset allocation, total marginal tax rate.

    Unless you have an account balance >250k in your 401k you don’t have to file any tax forms specifically for the 401k.  However, you’ll want to keep a record of your contribution form to Vanguard/Fidelity and all your plan documents.  IF you contribute to a traditional 401k and take a deduction you’ll take the deduction on your 1040 Schedule 1, line 28:

    https://www.irs.gov/pub/irs-pdf/f1040s1.pdf

    This is the same form where you’ll take the 1/2 of self-employment tax deduction (from your Schedule SE, which in turn flows from your Schedule C).  The 1040 itself also has an area for the qualified business deduction on line 9:

    https://www.irs.gov/pub/irs-pdf/f1040.pdf

    Follow the form instructions if you’re curious, but with what you’ve stated thus far and with tax filing now starting I’d get professional help.

    Click to expand…

    Shoot, I was busy on an ICU rotation and didn’t have time to respond. Thank you!!

    I’m contributing to a governmental 457b that is kept in a stable asset fund, and upon graduation I will roll over into my Solo 401K

    Without getting into too much details, current portfolio is in the mid-five figures, 100% stock index funds (Roth IRA+taxable), 22% federal tax rate (9.3% state), single filer. I’d like to use the 457b (that eventually goes into the Solo 401K in ~July) and the 1099 income I’d like to put into my Solo 401K to rebalance and get a 80% stock-20% bond ratio, with 20% of the stocks as international holdings. But my first priorities are figuring out what percentage of the 1099 income would optimally go into Roth vs traditional…and what goes into what (buy bonds with the Roth money??) to make it tax efficient in this scenario.

    Thank you again!

    #189507 Reply

Reply To: Currently paralyzed by Backdoor Roth vs Roth IRA & Solo 401Ks, help

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