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Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement acc

Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.

celestialcheese 5y ago
Search Mega Backdoor Roth [1] 1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/ https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...
- qzw 5y ago
  Yes, but for anyone considering this, keep in mind that any funds converted to Roth are subject to taxation now, less the Roth contribution limit (varying by your income). So you're picking between tax deferral now versus tax-free distributions later. There's no way to get both.
  - vmception 5y ago
    But also note that its not a penalty, just normal taxation added to your AGI or MAGI, so you can reduce or nullify that current year tax by having lots of expenses (borrowing against assets and using them for deductible expenses, donating appreciated assets to charity etc) This can be done strategically, such as one year where you need traditional pretax 401k / IRA tax deductions you just contribute to those. And in a future year you convert those to Roth and report the income that you reduce with expenses Talk with a CPA about it to make it make sense. People act like a random person on the internet mentioning something about legal/taxes is the most heretical thing possible, but the point is to point you in the right direction and bring up the same topic with licensed professionals. Lawyers and CPAs aren't going to procedurally generate all possibilities to get you the best result, you have to inspire them to look in particular directions and verify along with implement if it checks out.
vmception 5y ago
Roth 401k contributions are subject to the same traditional 401k contribution limits. I think you are not understanding. Where does this conflicting information come from? Do note that there is a super confusing "after tax 401k" as well as a "roth 401k" which is also after tax but different. Search engines have trouble with this, and it also confuses gurus. But neither of these reduce a 401k contribution down to $5k, and the roth 401k is all taxed now and tax free later exactly like a roth ira with 1,000% higher contribution limits. Sources for my world: https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estates/2019/02/25/roth-401-k-vs-after-tax-401-k https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estate... My CPA https://www.nerdwallet.com/article/investing/roth-401k https://www.nerdwallet.com/article/investing/roth-401k https://www.irs.gov/retirement-plans/roth-comparison-chart https://www.irs.gov/retirement-plans/roth-comparison-chart (only details the employee contribution here)

Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.

celestialcheese 5y ago

Search Mega Backdoor Roth [1] 1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/ https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...

qzw 5y ago
Yes, but for anyone considering this, keep in mind that any funds converted to Roth are subject to taxation now, less the Roth contribution limit (varying by your income). So you're picking between tax deferral now versus tax-free distributions later. There's no way to get both.
- vmception 5y ago
  But also note that its not a penalty, just normal taxation added to your AGI or MAGI, so you can reduce or nullify that current year tax by having lots of expenses (borrowing against assets and using them for deductible expenses, donating appreciated assets to charity etc) This can be done strategically, such as one year where you need traditional pretax 401k / IRA tax deductions you just contribute to those. And in a future year you convert those to Roth and report the income that you reduce with expenses Talk with a CPA about it to make it make sense. People act like a random person on the internet mentioning something about legal/taxes is the most heretical thing possible, but the point is to point you in the right direction and bring up the same topic with licensed professionals. Lawyers and CPAs aren't going to procedurally generate all possibilities to get you the best result, you have to inspire them to look in particular directions and verify along with implement if it checks out.

vmception 5y ago

Roth 401k contributions are subject to the same traditional 401k contribution limits. I think you are not understanding. Where does this conflicting information come from? Do note that there is a super confusing "after tax 401k" as well as a "roth 401k" which is also after tax but different. Search engines have trouble with this, and it also confuses gurus. But neither of these reduce a 401k contribution down to $5k, and the roth 401k is all taxed now and tax free later exactly like a roth ira with 1,000% higher contribution limits. Sources for my world: https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estates/2019/02/25/roth-401-k-vs-after-tax-401-k https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estate... My CPA https://www.nerdwallet.com/article/investing/roth-401k https://www.nerdwallet.com/article/investing/roth-401k https://www.irs.gov/retirement-plans/roth-comparison-chart https://www.irs.gov/retirement-plans/roth-comparison-chart (only details the employee contribution here)