Menu
The forum is temporarily closed for new topics and comments. We are working on improving your forum experience. Stay tuned!

Research into solo 401k with intent for mega backdoor roth

Home Retirement Accounts Research into solo 401k with intent for mega backdoor roth

  • Avatar ChicSkiier 
    Participant
    Status: Physician
    Posts: 15
    Joined: 06/24/2019

    My 1099 income is only about $5k. From the MMM thread, discount solo 401k is about $575 the first year and $100 each subsequent year you do the mega backdoor roth. At the moment I am thinking it would be cost effective, since even though $3000 is a paltry sum that would otherwise go in a taxable account, the capital gains tax I would pay several decades from now would exceed it. And currently, my future plans are to transition to part time locums work when this would be more a more useful strategy, but that would still justify the upfront $575 cost. I’ll wait till the end of the year before I decide how to play this. I’ve never even opened a solo 401k before, so this would be an interesting adventure.

    Click to expand…

    you can use TFB calculator to see the value

    https://docs.zoho.com/sheet/published.do?rid=b6wwv1d611964d92c49f491b3b7f9cc578207

    https://thefinancebuff.com/after-tax-contributions-in-solo-401k.html

     

    As mentioned the cost is deductible for business expense.

    Click to expand…

    Amazing excel sheet and helpful website.  Thanks saildawg

     

    #238492 Reply
    Liked by saildawg
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1237
    Joined: 02/15/2016

    I just dropped off all my paperwork at Fidelity today.  Very glad I still had printing privileges at the corporate overlord I left last week.  All the documents I printed from Discount 401k were easily 2 inches high.

    Thanks to saildawg for blazing the trail and posting detailed descriptions of his/her experience.  I also printed out an application for three separate accounts at Fidelity with a typed letter explaining my rationale for doing so.  The Fidelity application says it requires an initial $500 deposit for each account.  One potential snag is I can’t make any initial Roth contributions in 2019 because I’ve already deferred $19,000 in salary through work.  Anyone encountered this and know if Fidelity will work with me on that?  It would be lame to have to wait till 2020 to do the Roth rollover, but I suppose the only real loss is paying an extra year of fees to Discount 401k.

    #251419 Reply
    Liked by saildawg
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1980
    Joined: 02/01/2016

    Check with Fidelity. There have been other cases where an application says an initial deposit when it isn’t really mandatory. Or maybe they will allow you to make an initial $1,000 employer contribution and do an immediate in-plan Roth rollover of $500 to the designated Roth account. Also, surely your plan allows in-service rollovers to a Roth IRA and the designated Roth account isn’t really immediately necessary.

    #251494 Reply
    Avatar saildawg 
    Participant
    Status: Physician
    Posts: 343
    Joined: 01/24/2016
    The Fidelity application says it requires an initial $500 deposit for each account.

    Click to expand…

    Glad that this thread helped at least one person.  When I talked to the Fidelity rep, they said you didn’t need to fund account for up to a year so you have time.  It will remain open, I have 2 I haven’t funded (post tax and roth) and they are still open

    #251526 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018
    One potential snag is I can’t make any initial Roth contributions in 2019 because I’ve already deferred $19,000 in salary through work

    Click to expand…

    @lithium do you plan to make Roth deferral contributions, and after tax contributions followed by in plan Roth rollover?

    I think – I admit to not understanding these rules well – this is something to be careful with or at least worth seeking to understand fully, because if you did both of the above you would have distributable dollars (after tax contributions I believe are always distributable) within the same Roth subaccount as nondistributable dollars (deferral contributions I believe are not distributable until separation from employer, or retirement age). Which would then make things complicated if you wanted to rollover Roth funds out to your Roth IRA.

    I have not tried to fully understand the distribution rules mostly because I don’t make deferral contributions to my plan. But I do know to be careful about this.

     

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

    #251720 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1237
    Joined: 02/15/2016

    One potential snag is I can’t make any initial Roth contributions in 2019 because I’ve already deferred $19,000 in salary through work

    Click to expand…

    @lithium do you plan to make Roth deferral contributions, and after tax contributions followed by in plan Roth rollover?

    I think – I admit to not understanding these rules well – this is something to be careful with or at least worth seeking to understand fully, because if you did both of the above you would have distributable dollars (after tax contributions I believe are always distributable) within the same Roth subaccount as nondistributable dollars (deferral contributions I believe are not distributable until separation from employer, or retirement age). Which would then make things complicated if you wanted to rollover Roth funds out to your Roth IRA.

    I have not tried to fully understand the distribution rules mostly because I don’t make deferral contributions to my plan. But I do know to be careful about this.

     

    Click to expand…

    No, I have only deferred pre-tax contributions this year, but my salary deferrals were done through my employer’s 401k plan, not my Solo 401k plan through Fidelity.  It sounds as though you’re saying making Roth deferrals to this account next year could be tricky, and I think I understand why.

    I am not sure whether I prefer to make Roth deferrals into my 401(k) plan next year or not.  If I did, would it be kosher to open up a plan at a different brokerage?  Or even set up a fourth account at Fidelity?

    #251724 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018

    If I were going to make Roth deferral contributions, and after tax followed by in plan Roth rollover, I would make sure to invest the two “buckets” of funds differently, within the one Roth subaccount

    That way you have a separate accounting of those funds and don’t have to worry about having to allocate earnings of mixed funds later.

    Or, you could make Roth deferrals, and after tax contributions with rollover to external Roth IRA.

    I would not pursue a 4th account or an account elsewhere.

    @spiritrider could also likely provide excellent advice around this and correct my mistake if I’ve proven my lack of knowledge here by stating something incorrect.

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

    #251729 Reply
    Liked by jfoxcpacfp
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1237
    Joined: 02/15/2016

    Yeah I just reread page 1, and was going to post that I forgot about the option of rolling it over to the Roth IRA instead of the IRR.  That option makes the most sense for me.  Thanks!

    #251733 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018

    In some states, solo 401k may have better asset protection character than IRA. Or vice versa. Just another thing to think about.

    Whichever option you choose, make sure discountsolo401k produces a 1099 for the after tax – Roth rollover

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

    #251736 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1237
    Joined: 02/15/2016

    I took a look at the link @saildawg had for the asset protection laws.  Seems my state protects Roth IRAs but I’ll look for other sources.

    How does Discount 401k generate the 1099-R?  Are you presuming Fidelity will send them a record of rollovers after the year is done?

    #251740 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018

    I don’t believe Fidelity will send be involved, not actively. See from Fidelity’s perspective they wouldn’t necessarily know this is a rollover. It’s just a transfer between two accounts that you control. The non prototype account is just a simple brokerage account in the name of your 401k trust. The subaccounts May have names but the character of the funds is on you, not Fidelity, to know, record, and be able to support later.

    You should complete a form which memorializes contributions you make to the accounts. Deferral election form. After tax voluntary contribution election form. in plan Roth rollover form. Discountsolo401k should be able to provide these.

    You keep records. Keep in touch with discountsolo401k and make sure they’ll produce the 1099r. This would record the rollover amount, with any earnings on after tax contributions before rollover, taxable to you.

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

    #251745 Reply
    Liked by Lithium
    Avatar robaxin 
    Participant
    Status: Physician
    Posts: 35
    Joined: 09/10/2018

    Anyone use mysolo401k.net?

    #252073 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 2465
    Joined: 03/01/2018

    several

    did you read the thread?

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

    #252076 Reply

Reply To: Research into solo 401k with intent for mega backdoor roth

In case of a glitch or error, please save your text elsewhere, clear browser cache, close browser, open browser and refresh the page.

Notifications Mark all as read  |  Clear