Author Topic: Anyone Execute a mega backdoor roth in solo 401k ?  (Read 13801 times)

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #100 on: January 08, 2019, 12:50:58 PM »
It's not the last day you can make a change to it.
But in theory you're supposed to have something in place before the start of the 2019 year.

wudged

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #101 on: January 13, 2019, 11:48:42 AM »
Be aware of Turbo Tax's "Maximize Contribution to Individual 401(k)" checkbox. It calculated a full $18,500 on the employee side, which is not allowed since I had already contributed that much to my 403b.  It might be just an issue with 403b and not 401k, but I'm not sure. I do remember doing this in the past when I contributed to a W2 401k and it not being a problem.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #102 on: January 17, 2019, 12:58:52 PM »
I don't know if you can get support from TurboTax but maybe they have an explanation for you why the software is doing that?

Is TurboTax the best of the tax software out there?

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #103 on: January 30, 2019, 04:15:02 PM »
Someone asked on the finance buff blog whether, "can I perform quarterly rollovers from 401K to IRA since I will be contributing to the 401K throughout the year.
Will I need to file a 1099-R each time I perform a rollover or can I file one 1099-R at the end of the year for the cumulative amount rolled over from the after-tax 401K to Roth IRA? "

And Harry Sit responded, "You only need to file one 1099-R for the cumulative amount of the distributions."

deeppizza

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #104 on: February 28, 2019, 03:50:04 PM »
I'm very interested in creating a solo 401k as been described here extensively for the purpose of using after-tax (1099) money to eventually be placed into a Roth IRA, and I've found this thread to be incredibly useful and informative.  I've been torn between mysolo401k.net and discountsolo401k, but it sounds like everyone has had good experiences with Discount Solo 401k.  My question is that if I already have a Roth IRA account through Fidelity, why would I need to create more than just 1 new account for "After-Tax" (as opposed to the 3 or 4 accounts that other posters have done), and then just have periodic distributions rolled over to the already existing Roth IRA?  I do not have a prior solo 401k through Fidelity or anywhere else. 

Kakashi

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #105 on: February 28, 2019, 11:48:18 PM »
My question is that if I already have a Roth IRA account through Fidelity, why would I need to create more than just 1 new account for "After-Tax" (as opposed to the 3 or 4 accounts that other posters have done), and then just have periodic distributions rolled over to the already existing Roth IRA?  I do not have a prior solo 401k through Fidelity or anywhere else. 

I'm definitely not the authority on solo 401k's.  But I imagine you need 2 accounts.  1) pretax and 2) aftertax.  You don't need a "roth" solo401k account if you intend to just roll it into the roth IRA.  Were you planning on JUST aftertax money?  If so, are you already putting in 401k with an employer perhaps - which will complicate the situation in terms of how much you can put in.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #106 on: March 01, 2019, 05:05:41 PM »
Some people prefer to roll the after tax money into a Roth IRA because they need to be able to have access to making withdrawals out of the Roth IRA as part of the early retirement strategy.

I'm older and I don't have a need to access Roth money anytime soon so I don't mind the rules for Roth 401k regarding when withdrawal is permitted.

deeppizza

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #107 on: March 01, 2019, 08:56:12 PM »
My question is that if I already have a Roth IRA account through Fidelity, why would I need to create more than just 1 new account for "After-Tax" (as opposed to the 3 or 4 accounts that other posters have done), and then just have periodic distributions rolled over to the already existing Roth IRA?  I do not have a prior solo 401k through Fidelity or anywhere else. 

I'm definitely not the authority on solo 401k's.  But I imagine you need 2 accounts.  1) pretax and 2) aftertax.  You don't need a "roth" solo401k account if you intend to just roll it into the roth IRA.  Were you planning on JUST aftertax money?  If so, are you already putting in 401k with an employer perhaps - which will complicate the situation in terms of how much you can put in.

Yes, just putting in aftertax money only as I'm already putting in max allowed through employer 401k (and they've refused to allow after-tax contributions despite me lobbying). 

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #108 on: March 02, 2019, 06:54:04 PM »
Keep in mind you're allowed a separate employer deduction for your self employment business. You might want to take advantage of that.

deeppizza

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #109 on: March 05, 2019, 08:30:35 AM »
I've decided to go with discount solo 401k to set up my after-tax, non-Roth contributions with the primary goal of mega backdoor Roth.  Now I'm having trouble deciding if I should set it up through Vanguard or Fidelity.  I know that other's have said that Vanguard only uses "pooled accounts", but since I'm only making after-tax contributions, I don't think that it really matters in my situation.  I already have Roth IRAs at both Vanguard and Fidelity to periodically roll over the solo 401k.  And I would prefer Vanguard just for simplicity since most of my other personal accounts are already there and I like the funds better than Fidelity in general.

The only big difference I see between the two are 1) the process of contributing $ to the solo 401k, and 2) the process of making direct transfers to the Roth IRA.
I believe that you can link a personal bank account to the pooled account at Vanguard (which would be the solo 401 k account), so contributions to the solo 401 k come directly from your personal bank account via ACH.  It sounds like Fidelity doesn't have an option for ACH, and your options are to use a business brokerage account or business bank account, mail a check w/form, or personally deliver a check to a Fidelity branch office.
In terms of direct transfers to Roth IRA, Vanguard makes you fill out 2 forms as well as a letter of instruction.  I plan on making contributions throughout the year, and would like to make transfers fairly quickly to limit any gains, so having to fill out forms every time seems cumbersome.  Do you know if the process is any more streamlined with Fidelity?  Curious to hear other people's thoughts and recommendations.

wudged

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #110 on: March 05, 2019, 08:38:43 AM »
AFAIK Vanguard doesn't have "non-prototype" accounts and would force you to use their standard (prototypical) plan document, which does not allow after-tax and/or does not allow in-plan conversion (probably both.)

For Fidelity, you can setup bill pay so that contributions are all "electronic" - in the end it goes through as an actual check mailed to Fidelity, but everything from the user end is done online.  It just takes a couple days for it to clear (but the same happens if you ACH to a separate account then call in to transfer the money between accounts.)  For the actual rollover portion, you are required to fill out a single form (from / to accounts) and mail or hand-deliver it.

I only make contributions every 2-3 months and then do the rollover once it's cleared.  I just leave the money in the default cash/core account so it only generates a couple dollars interest over the course of the year, which is not a big deal to pay tax on those gains.

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #111 on: March 10, 2019, 07:15:30 AM »
Someone brought up an interesting comment on Harry Sit's blog and makes me wonder whether it makes sense to maximize the employer deduction, but rather to just throw as much money as possible into the after tax contribution, that in turn is rolled into the Roth.

By deducting the solo 401k employer contribution  one is negating the benefit of the 20% QBI business deduction. The QBI deduction shields from federal and state income taxes.

There must be some formula that helps one find just the right amount of employer deduction one can take, and instead of maximizing the employer contribution to the solo 401k, one might want to increase the after-tax contribution to the solo 401k.

deeppizza

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #112 on: March 15, 2019, 04:36:24 PM »
I turned in my Fidelity application for the non-prototype 401k retirement account after receiving my documents from discount solo 401k.  I did ask Justin if it was required that I have set up a new bank account for the 401k in the name of the trust with the trust EIN, or can I use my existing personal checking account to make contributions/fund the account?  Response was "although it does not need to be a bank account, you will need some type of account in the name of the trust in order to receive 401k contributions. You'll want to hold all trust assets separate from your own assets."  Is this your experience as well?  To streamline this process a little easier, I was looking at Fidelity's Cash Management Account (as you can open trust account with them) - has anyone used them as their account for the solo 401k?

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #113 on: March 15, 2019, 07:54:08 PM »
I honestly haven't done that. I just move money online from my regular checking account over to my Fidelity Cash Management account.
Then either over the phone or in a Fidelity office I have them move the money from Cash management account over to the non-prototype account.
The non-prototype accounts are in the trust.

deeppizza

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #114 on: March 15, 2019, 08:13:43 PM »
I honestly haven't done that. I just move money online from my regular checking account over to my Fidelity Cash Management account.
Then either over the phone or in a Fidelity office I have them move the money from Cash management account over to the non-prototype account.
The non-prototype accounts are in the trust.

Is your regular checking account titled under your 401k trust?  Or is it a personal checking account?

DavidAnnArbor

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #115 on: March 15, 2019, 09:09:04 PM »
Personal checking

wudged

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Re: Anyone Execute a mega backdoor roth in solo 401k ?
« Reply #116 on: March 17, 2019, 10:12:33 AM »
I originally did this too but started just doing a bill pay directly from personal checking account into the non-prototype accounts. Those accounts are in the name of the trust which imo fulfills the "account in the name of the trust" portion.