scown, welcome to the forum.
Thanks! Long time lurker and mustachian-in-training (we save over 50% but with our income I'd really like it to be higher, but that's a different thread).
Do you think that is a deductible tIRA? See http://www.irs.gov/Retirement-Plans/IRA-Deduction-Limits.
I may have misread that your statement meant a tIRA you contributed to for this year - does it? Or do you mean a tIRA you established long ago (when you had much lower income) has grown and coincidentally now has ~the amount of the allowable annual contribution?
I should have clarified this. I have a previously existing tIRA from last year with $5,500 in it. I have not contributed this year. For this year I'm thinking I'd put $5,500 after tax into a tIRA and then convert to Roth. If I'm not mistaken, though, doing this would force all tIRAs to get converted to Roth and I'd have to pay tax on $5,500 from last year.
Look into whether you can roll your tIRA into your solo 401(k) plan. That would avoid the cost of converting that sum to Roth. However even if you do have to convert to Roth, that cost may be worthwhile if it enables you to stash away $5.5k in a Roth every year until you retire.
The solo 401(k) limits are based on your self-employment income only. The W-2 income doesn't qualify. Any chance you could get your employer to offer a 401(k)?
No chance on the 401(k) this year with the current employer. I can probably swing it next year if I lobby hard enough. Thank you for the tIRA roll over into solo 401(k) idea, I'll definitely look into it.
Maybe you mistyped or I am doing my math wrong but 20% of $35000 is $7000 + 18000= $25000 not $55000 (at least according to my math).
My bad on this one. I was meaning to point out that I could up my 1099 income this year from $35,000 to $55,000 in order to get a higher 401(k) contribution. By my math, taking the additional $20k this year would mean $4,000 (20% of $20,000) more into the solo 401(k) but I'd pay $5,280 (33% of $16,000) more in taxes. Still not sure if it's the right thing to do. The other option is to take the $20k next year when my income is set to be about half of this year's.
Thank you all for the feedback.