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Damn this Roth stuff

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  • Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    OP, your collection of posts over the past month make me worried that your are rushing to correct past mistakes without having a clear plan of what you are doing, and each time you make a move you then rush to post a multitude of questions about how something may have been done incorrectly and how to fix it.

    I would advise you to slow down, and consult with a fee-only CPA to create a clear plan of how you want to move forward.  Why not hire Johanna?  Considering she has tried to help on multiple posts at this point, it would be a good idea to get a professional to review your entire situation so you stop making mistakes going forward.

    Click to expand…

    It’s a good thought treesrock, and it is my plan to hire someone to look at the big picture later this year.  If you have followed my posts, you may have gathered that I am currently dealing with some piecemeal issues that are time sensitive for a variety of reasons (premiums on old policies coming due, tax time, etc) and I can only afford a certain number of hours per week on this so I have to prioritize.

    Also the possible error in predicting the range of my AGI is not something a FA could help me with unless I provided them the info (which if I had it all accurately, I would have known myself) — in fact, FAs usually look at old records to get an idea of financial picture, which would not have been helpful in my case this year.

    I am very much looking forward to slow down, trust me.  But at the same time, I feel good making moves that have been a long time coming, so that when I do discuss with FA I will have more of the basics in place and can take more time to fine tune.

    #185216 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    here is my meager attempt to explain pro rata tax on another thread:

    https://www.whitecoatinvestor.com/forums/topic/backdoor-roth-rookie-mistake-and-advice/#post-182480

    That was another user that had no choice but to deal with the pro rata tax, but to the OP, pro rata doesn’t matter if they move the tIRA.

    @snag75 you still didn’t really answer my question.

    When are you going to move your tIRA?

    I would advise moving your tIRA to an employer plan rather than a solo k, for now. Keep things simple. Get your tIRA moved, get your backdoor Roths done for 2018 and 2019. Then, let’s talk about a solo 401k.

    Click to expand…

    Actually jacoavlu I did read that response when you wrote it and it was very helpful for me too to get another step closer to wrapping my head around how pro rata works.  Thanks for that, very helpful!

    But in that OP’s case, his IRA contributions for Roth were the same pot as the one he created for rollovers, whereas my plan was to create a separate tIRA account for the sole purpose of Roth, while rolling over my “main” IRA fund elsewhere.  I’m wondering if (for whatever reason, as it sounds like you have provided a plan where I could avoid this) I tried to do a bd Roth and still had that money in the separate IRA pot…where would the basis live and how does it get there?

    I’ll move my tIRA by 12/31/19. 😉  No seriously, as I mentioned above, I’m doing what I need to do in the order I need to, and I didn’t move it end of last year because I thought I didn’t need to (and had a big time crunch).  Now that I have more time I need to think about how and where, but at least now I have more time for that.

    Of course would be easier to move to 457B, but then I can’t roll it out until I terminate, right?  Then what’s the point of the solo-K at that point?  If there are advantages to the solo-K (e.g. if I open one with Roth), I’d like to weigh those advantages vs the simplicity of just keeping all my funds together.  Right now I don’t have EIN or anything and a little nervous about what all the solo-K stuff involves (to set up and tax-wise), but at the same time would like to think long term, esp if it gives an option to deposit more Roth funds this year.
    Oh, here’s another question — if I open a soloK+Roth in 2019 (before April), can I deposit 2018 money into it (namely the Roth portion)?  It’s complicated, but also a time sensitive question since I don’t know how much 1099 income I would have year to year and I have zero Roth funds allocated as we speak so feel very behind there.

    Thanks!

    #185217 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2264
    Joined: 03/01/2018

    the window has closed for you for 2018 solo 401k contributions because the plan had to have been opened by 12/31/18

    you could still open a SEP IRA by 4/15/19 and make a contribution of 20% of net self employment 2018 earnings. This would be one more account you would have to rollover in order to be able to do a backdoor Roth without pro rata taxation

    If you rollover your tIRA to your 457b you may still be able to rollover this to another plan later even before you separate from that job. You could check with your plan. There are different distribution rules for different types of funds (elective deferral, profit sharing, rollover etc)

    if you make a nondeductible tIRA contribution, the distribution rules basically make it so that those are the last dollars to leave the tIRA if you do a rollover. This is to your advantage. So that you can rollover you pretax money and leave the basis and then convert the basis amount to Roth

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #185280 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2264
    Joined: 03/01/2018

     

    As to the solo 401(k) for the advantage of Roth option, I doubt that this is worth it for you. Do you know your marginal tax rate? I would think between that and California state tax, you would be better off with pretax.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #185287 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    the window has closed for you for 2018 solo 401k contributions because the plan had to have been opened by 12/31/18

    you could still open a SEP IRA by 4/15/19 and make a contribution of 20% of net self employment 2018 earnings. This would be one more account you would have to rollover in order to be able to do a backdoor Roth without pro rata taxation

    If you rollover your tIRA to your 457b you may still be able to rollover this to another plan later even before you separate from that job. You could check with your plan. There are different distribution rules for different types of funds (elective deferral, profit sharing, rollover etc)

    if you make a nondeductible tIRA contribution, the distribution rules basically make it so that those are the last dollars to leave the tIRA if you do a rollover. This is to your advantage. So that you can rollover you pretax money and leave the basis and then convert the basis amount to Roth

    Click to expand…

    I don’t think it’s worth opening a SEP IRA at this point, as my SE earnings are not much.  But what would be the limits for solo 401K contributions (  Ifdo you have to subtract out expenses and are limited by a percentage too?  Since my 1099 earning are not much, if I claim a HO (it’s review work at home), it can cancel out the earnings – does that mean I can’t contribute?

    I will check with employer if it allows to roll back out while employed – I assume this is just the amount that had been rolled in, correct?

    What I still don’t get about the pro rate tIRA thing, is if I have tIRA funds in a separate pot, then contribute $5K to another tIRA and roll it all into Roth (and get taxed on most of it due to pro rata), how does the initial “big” pot ‘know’ what amount of those funds are now basis (vs all pre-tax as before)?  Who keeps track of this if no money actually moved in or out of that pot?

    Good point about marginal tax rate — forgot that if I have solo-K I can actually contribute pre-tax funds to that as well (in addition to being a vessel for IRA rollover).  I am trying to figure out my marginal rate (just made a post on trying to figure out based on 2017 return, and finding some confusion), but then also I guess same question applies about how much of my 1099 income can I even contribute anyway?

    Thanks so much, very helpful! 🙂

    #185429 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4217
    Joined: 01/08/2016
    Who keeps track of this if no money actually moved in or out of that pot?

    Click to expand…

    you have to. thats form 8606.

    #185433 Reply
    Liked by jacoavlu
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2264
    Joined: 03/01/2018

    If you have no other 401k or 403b, you could contribute to a solo 401k at least the lesser of 100% of compensation (1099 business profit minus one half self employment tax) or $19,000 as elective deferral, pretax or Roth.

    So at low levels of 1099 income if all you have otherwise is a 457b you can contribute almost all the income to a solo k. That’s much more than you could contribute to a SEP IRA.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #185442 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    If you have no other 401k or 403b, you could contribute to a solo 401k at least the lesser of 100% of compensation (1099 business profit minus one half self employment tax) or $19,000 as elective deferral, pretax or Roth.

    So at low levels of 1099 income if all you have otherwise is a 457b you can contribute almost all the income to a solo k. That’s much more than you could contribute to a SEP IRA.

    Click to expand…

    Ok I see, so for soloK you can contribute more but cap at $19K?

    If I am claiming home office, then I assume I subtract those expenses out of my 1099 earnings (well under $10K/yr), I will probably have very little left as “profit”.  Would it ever make sense to claim less business expenses in order to contribute more to 401K (I am mid-40s, just over 20yrs until retirement)?

    #185453 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018
    Who keeps track of this if no money actually moved in or out of that pot? 

    Click to expand…

    you have to. thats form 8606.

    Click to expand…

    But I assume that figure needs to be kept track of beyond just this tax year.  How does that the holder of that account (e.g. Fidelity) “know” that you have a certain amount of basis in that account now, if and when you rollover or take distributions?

    #185457 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2264
    Joined: 03/01/2018

    The cap is $19k for employee deferral. $56k total addition limit. There is no such thing as employee deferral to a SEP IRA. That’s one solo k advantage.

    You cannot choose to not deduct a legitimate business expense so as to increase compensation so as to increase retirement plan contributions.

    Is your home office a legitimate deduction? is the question you should ask yourself

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #185460 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2264
    Joined: 03/01/2018

    Brokerage doesn’t track your basis. You do. With form 8606.

    Rollover your tIRA then you don’t have to worry about basis.

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #185462 Reply
    Liked by Peds, Hank
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 4217
    Joined: 01/08/2016
    Who keeps track of this if no money actually moved in or out of that pot? 

    Click to expand…

    you have to. thats form 8606.

    Click to expand…

    But I assume that figure needs to be kept track of beyond just this tax year.  How does that the holder of that account (e.g. Fidelity) “know” that you have a certain amount of basis in that account now, if and when you rollover or take distributions?

    Click to expand…

    they dont. again. you do. you carry it over every year. like capital losses.

    #185471 Reply
    Liked by Snag75
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    You cannot choose to not deduct a legitimate business expense so as to increase compensation so as to increase retirement plan contributions.

    Is your home office a legitimate deduction? is the question you should ask yourself

    Click to expand…

    Well, I do near 100% of my IC business in my home, using my computer and internet and cell phone and home office space.  TurboTax had me enter percentages of home use, as well as property tax info, and I estimated what percent of use of computer/internet/phone, etc I used for that business.  A lot of these are small percents, but taken from big totals, they add up.

    Then there is licensing fees, CME costs, board cert, etc – right?  All of which I also need for W2 job, but some percent from side gig.  I assume I figure a percentage of those too?

    I didn’t know you’re required to take business expense deductions — I thought people just max what they can to save on taxes and if you miss something, it’s your own loss.

    #185478 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7948
    Joined: 01/09/2016
    I didn’t know you’re required to take business expense deductions — I thought people just max what they can to save on taxes and if you miss something, it’s your own loss.

    Click to expand…

    Problem is, it’s not always a loss. Big temptation to do this to increase the Earned Income Credit (EIC), definitely fraudulent.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #189339 Reply
    Avatar G 
    Participant
    Status: Physician, Small Business Owner
    Posts: 1738
    Joined: 01/08/2016

    Snag, I think I said this in one of your other threads: you would be well served by doing nothing on your own…hire an FA like Johanna (Altho didn’t I read that she was full?) and or nothing until you do a bunch of self-education.

    I’ve been on this forum for a bit. I cannot recall this many question marks on one thread. Go back and look through. Just this thread. Again, respectfully, I do not get a sense that you are ready (yet) to do this on your own with only the help of strangers on the internet.

    Yes, I read your response to treesrock.

    #189409 Reply
    Liked by Snag75

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