Author Topic: How to achieve $56k employee contributions  (Read 502 times)

Cries

  • 5 O'Clock Shadow
  • *
  • Posts: 6
How to achieve $56k employee contributions
« on: January 10, 2019, 09:49:23 PM »
Im trying to figure out how I can get to the max employee deferral contributions of $56k for 2019.  Here’s the current setup:

Pre-tax 401k: $19k
Maximum after-tax contributions allowed under my employer’s plan: $30k
Traditional IRA: $6k
Employer match: 0

Total: $55k

Is there a way for me to get that last $1k (to achieve the full $56k) into some sort of deferral account?  Are there any other retirement account types that im missing that I can drop the extra $1k into?

Separately, do HSA contributions ($3.5k) count toward our $56k deferral contribution limit?

Thanks for the help!

beam

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: How to achieve $56k employee contributions
« Reply #1 on: January 10, 2019, 10:33:22 PM »
Your 401k, IRA and HSA all have separate limits that do not interact. $56,000 is the limit for the combined employee + employer 401k contributions for a single plan in 2019, but it sounds like your plan will not allow you to contribute more than $49,000. Still, that's fantastic if you can get there! You can definitely still do your IRA and HSA to the max as well.

The only way for you to put more money into a 401k would be to have access to another 401k, either through another job at an unrelated employer, or in a solo 401k you could establish if you have 1099 employment earnings. The $19,000 employee deferral limit for traditional and Roth contributions is shared across all 401k plans per year, but employer contributions and employee after-tax contributions are not. Good luck!


Abe

  • Handlebar Stache
  • *****
  • Posts: 1150
Re: How to achieve $56k employee contributions
« Reply #2 on: January 10, 2019, 11:13:28 PM »
What is your plan with the after-tax contributions? Are you doing a mega backdoor Roth?

Cries

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How to achieve $56k employee contributions
« Reply #3 on: January 10, 2019, 11:13:48 PM »
thanks.  that makes perfect sense.  I do have some 1099 income i can use.  Will look into the cost of solo 401ks to see if its worth it.  Hopefully the fees arent prohibitive

Cries

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How to achieve $56k employee contributions
« Reply #4 on: January 10, 2019, 11:14:16 PM »
What is your plan with the after-tax contributions? Are you doing a mega backdoor Roth?
yes.  I can do it in-service

beam

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: How to achieve $56k employee contributions
« Reply #5 on: January 11, 2019, 12:23:42 AM »
That's great you have the 1099 income to work with. I recently completed the mega backdoor Roth with a plan set up via MySolo401k. The upfront fee was high -- something like $795 for the first year, and $125 for each subsequent year. The service was great, lots of hand-holding and very responsive. But it was pretty cool to be able to put $100k+ into Roth this year!

terran

  • Handlebar Stache
  • *****
  • Posts: 1713
Re: How to achieve $56k employee contributions
« Reply #6 on: January 11, 2019, 05:58:00 AM »
The $56k limit is per plan, so the traditional IRA isn't a factor here. Sounds like your 401(k) will have $7k left in your 415(c) limit, but since it limits after tax contributions you won't be able to hit it. Note that employer contributions are counted in the limit, so if your employer contributes that will go towards the limit too. In that case make sure you don't go over the limit as your employer may then not contribute the full employer contribution.

If you open a solo 401(k) or SEP IRA for your 1099 income that will be a separate $56k limit. The $19k limit is combined though, so you'll only be able to make employer contributions to the solo 401(k) in that case (SEP IRA contributions are always employer only).

If your employer sponsored 401(k) was actually a 403(b), I believe that limit is combined with other plans when considering the 415(c) limit, so you'd have only one $56k limit.

At the end of the day, I wouldn't worry about trying to hit the $56k limit in any one plan. All you need to consider is maxing out your particular plans to the extent that they allow and that you can afford regardless of underlying IRS limits.

Cries

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How to achieve $56k employee contributions
« Reply #7 on: January 11, 2019, 12:47:01 PM »
Thanks very much for the responses, everyone. 

New issue I just realized is that my income benefited from a moderate windfall this year.  Salary/bonus of about $300k.

My understanding is that contributions to a traditional IRA will not be tax deductible based on this income level.  I have already made the full contribution to the traditional IRA.

Should I be unwinding this contribution?  Is my understanding that I will get no tax benefit from the traditional IRA contribution correct with this much income?  Would it be possible for me to backdoor this into roth IRA contributions?
« Last Edit: January 11, 2019, 12:49:23 PM by Cries »

beam

  • 5 O'Clock Shadow
  • *
  • Posts: 4
Re: How to achieve $56k employee contributions
« Reply #8 on: January 11, 2019, 12:54:36 PM »
Yes, go for a backdoor Roth. You don't get any deductions, but you can covert to Roth with no tax consequences.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3223
  • Age: 36
Re: How to achieve $56k employee contributions
« Reply #9 on: January 11, 2019, 12:57:56 PM »
Thanks very much for the responses, everyone. 

New issue I just realized is that my income benefited from a moderate windfall this year.  Salary/bonus of about $300k.

My understanding is that contributions to a traditional IRA will not be tax deductible based on this income level.  I have already made the full contribution to the traditional IRA.

Should I be unwinding this contribution?  Is my understanding that I will get no tax benefit from the traditional IRA contribution correct with this much income?  Would it be possible for me to backdoor this into roth IRA contributions?
Do you already have tIRA balance (ignoring this years contributions)?

If you do NOT, then convert it to Roth - this is the back door Roth IRA.

If do, then how much, and can you roll it in to your 401K?

If small, then convert the whole balance so you set up for back door Roth going forward.

If you have a large tIRA balance, then the thing to do is roll it into your 401K, and once that is done, do the conversion for the 2018 contribution.

If you have a large tIRA balance and can't roll it into the 401K, then request a return of excess contribution from your IRA - you'll pay tax on any earnings from the contribution, but no penalties if you do it in a timely manner.
« Last Edit: January 11, 2019, 01:00:16 PM by dandarc »

Cries

  • 5 O'Clock Shadow
  • *
  • Posts: 6
Re: How to achieve $56k employee contributions
« Reply #10 on: January 11, 2019, 01:14:48 PM »
Thanks very much for the responses, everyone. 

New issue I just realized is that my income benefited from a moderate windfall this year.  Salary/bonus of about $300k.

My understanding is that contributions to a traditional IRA will not be tax deductible based on this income level.  I have already made the full contribution to the traditional IRA.

Should I be unwinding this contribution?  Is my understanding that I will get no tax benefit from the traditional IRA contribution correct with this much income?  Would it be possible for me to backdoor this into roth IRA contributions?
Do you already have tIRA balance (ignoring this years contributions)?

If you do NOT, then convert it to Roth - this is the back door Roth IRA.

If do, then how much, and can you roll it in to your 401K?

If small, then convert the whole balance so you set up for back door Roth going forward.

If you have a large tIRA balance, then the thing to do is roll it into your 401K, and once that is done, do the conversion for the 2018 contribution.

If you have a large tIRA balance and can't roll it into the 401K, then request a return of excess contribution from your IRA - you'll pay tax on any earnings from the contribution, but no penalties if you do it in a timely manner.

Yes, I already had $6k in before the new contribution.  That existing balance was deductible.

Can I simply leave the full $12k ($6k existing, $6k new) in the traditional IRA with $6k of basis for the foreseeable future?  I can clean it up when my income (which is volatile) is lower.

I also temporarily live in a high-tax jurisdiction (NYC), which would make the converting the whole balance to roth IRA painful.  Is it not possible to only convert the traditional IRA basis?
« Last Edit: January 11, 2019, 01:17:33 PM by Cries »

dandarc

  • Magnum Stache
  • ******
  • Posts: 3223
  • Age: 36
Re: How to achieve $56k employee contributions
« Reply #11 on: January 11, 2019, 03:41:33 PM »
When you do a Roth IRA conversion, it is always prorated between the taxable an untaxable portion. That is why the "set up" for the backdoor Roth is to first transfer all outstanding tIRA money into your 401K if possible.

At $12K total, I'd personally just pay the tax and convert the whole thing - get things simplified quickly. The tax on that $6K will be a drop in the bucket when you're investing $50K+ per year for a while.

Sometimes, a person will find themselves in your position except instead of $6K from a a couple years ago, it is $300K from an old rollover IRA.