Author Topic: Solo 401k Preclude Future Roth Conversions?  (Read 549 times)

IsThisAGoodUsername

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Solo 401k Preclude Future Roth Conversions?
« on: December 04, 2019, 06:27:46 PM »
48m single head of household. Hoping to FIRE in 10 years.

In addition to my full time W2 job, I also have a sole proprietorship business with myself as the only employee. I have a SEP-IRA for the side business at Vanguard, along with my tIRA, rIRA, and brokerage accounts also at Vanguard.  I'm getting close to the AGI for eligibility for making Roth contributions (https://www.irs.gov/retirement-plans/amount-of-roth-ira-contributions-that-you-can-make-for-2019), so I'm strongly considering opening a Solo 401k at Fidelity in 2020 and rolling my SEP-IRA and tIRA funds into it. (Fidelity will allow me to roll my SEP-IRA and tIRA accounts into the s401k, whereas Vanguard will not.)
 Having no more tIRA accounts will allow me to avoid the pro-rata tax implications of doing backdoor tIRA-to-Roth contributions for the next few years, which is the entire purpose of this exercise.

My questions:
1. If I follow through with this plan, when I retire (and am hopefully in a lower tax bracket), can I do Roth Conversions from the Solo 401k directly into a Roth IRA account?
2. I'm already maxing my W2 401k and my Roth IRA contributions. I'm also maxing my 20% SEP-IRA contribution as my own employER.
3. I do not have access to an HSA.  I have no consumer debt. I have a 6 month emergency fund. I am maintaining ~50% savings rate after taxes. I am making contributions to a brokerage account.
4. Am I missing something here that you would suggest regarding how to maximize my ability to contribute to the various tIRA, rIRA, SEP-IRA, and 401k accounts?
« Last Edit: December 04, 2019, 07:43:04 PM by IsThisAGoodUsername »

aetheldrea

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Re: Solo 401k Preclude Future Roth Conversions?
« Reply #1 on: December 04, 2019, 07:35:55 PM »
The yearly 401k limit is per person, not account or job. If you are maxing out your 401k with your W2 job, you cannot contribute to another 401k.
Keeping the SEP would allow you to keep avoiding taxes on those contributions.
Sounds like you are bumping up against the income limits for for Roth IRA contributions, but an additional 401k account won’t help with that. You might be able to do a backdoor Roth but I am not familiar with those.

IsThisAGoodUsername

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Re: Solo 401k Preclude Future Roth Conversions?
« Reply #2 on: December 04, 2019, 07:39:47 PM »
Thanks, but you misread. Ive edited my original post for clarity. I'm contributing to the SEP-IRA (and in the future to the solo 401k) as the employER, not employEE. The point of using a solo 401k is to allow me to do backdoor roth contributions now without having pro rata issues with existing IRAs. I'm curious if I can do Roth conversions in the future from the Solo 401k or if that is not allowed.
« Last Edit: December 04, 2019, 07:43:28 PM by IsThisAGoodUsername »

terran

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Re: Solo 401k Preclude Future Roth Conversions?
« Reply #3 on: December 04, 2019, 08:48:27 PM »
1. A solo 401(k) requires a sponsoring employer, so once you retire it seems to me you'll need to close the 401(k) and roll it over into an IRA, which can then be converted to Roth. I wouldn't worry about it right now either way.
2. This doesn't seem to be a question, but since you're already maxing a workplace 401(k) the solo 401(k) limit will be the same 20% that you're currently contributing to the SEP.
3. Is there a question here?
4. Some SEP IRAs like Schwab's can be open while a solo 401(k) is open (still can't contribute to both of them), but Vanguard's isn't one of them, so make sure you don't contribute to the SEP for 2019 and make sure it's rolled over and closed right away when you open the Solo 401(k)