QUESTIONS:
I have already opened a Solo 401(k) through E-Trade, and have made my maximum $25,000 deferred contribution for 2019.
I’m now working on my 1065 returns for my LLC/partnership, due 7/15.
I understand that my “employer contribution” will be limited to 20% of my net income (though some places say 25%). This will be about an additional $15K pre-tax.
This means that my total 401(k) contribution will be about $22K under the 2019 maximum (56k + 6k – I’m over 50).
I’m not sure if Etrade allows me to make a voluntary after-tax contribution to this account. I’ve sent a question to their customer service to find out, and they’re usually good at answering.
But your website seems to be about the only place talking about this. In my situation, would I benefit from your service?
Thanks in advance for any guidance.
ANSWERS:
The profit-sharing contribution is based on how your entity is taxed. Based on your email below it appears that you are taxed as a partnership which means it would be 20% of your total self-employment compensation. Please see the following link for more information: https://www.mysolo401k.net/solo-401k/solo-401k-contribution-partnership-compensation/
If you were to restate your current solo 401k plan with E-TRADE to a solo 401k provider like My Solo 401k Financial, you would benefit from being able to make the Voluntary After-Tax contributions and you could keep your funds at E-Trade. However, you would need to open new brokerage accounts that would be governed by the new plan providers solo 401k plan documents.
Learn About the Restatement Process: Essentially, when an existing self-employed 401k plan is restated to a self-directed solo 401k plan, neither a final Form 5500-EZ nor a Form 1099-R is required because you are simply changing plan providers from provider A to provider B (My Solo 401k Financial).
Voluntary After-Tax Solo 401k Contributions:
A solo 401k plan from My Solo 401k Financial allows for voluntary after-tax contributions. Following are some of the rules regarding this type of contribution:
I have already opened a Solo 401(k) through E-Trade, and have made my maximum $25,000 deferred contribution for 2019.
I’m now working on my 1065 returns for my LLC/partnership, due 7/15.
I understand that my “employer contribution” will be limited to 20% of my net income (though some places say 25%). This will be about an additional $15K pre-tax.
This means that my total 401(k) contribution will be about $22K under the 2019 maximum (56k + 6k – I’m over 50).
I’m not sure if Etrade allows me to make a voluntary after-tax contribution to this account. I’ve sent a question to their customer service to find out, and they’re usually good at answering.
But your website seems to be about the only place talking about this. In my situation, would I benefit from your service?
Thanks in advance for any guidance.
ANSWERS:
The profit-sharing contribution is based on how your entity is taxed. Based on your email below it appears that you are taxed as a partnership which means it would be 20% of your total self-employment compensation. Please see the following link for more information: https://www.mysolo401k.net/solo-401k/solo-401k-contribution-partnership-compensation/
If you were to restate your current solo 401k plan with E-TRADE to a solo 401k provider like My Solo 401k Financial, you would benefit from being able to make the Voluntary After-Tax contributions and you could keep your funds at E-Trade. However, you would need to open new brokerage accounts that would be governed by the new plan providers solo 401k plan documents.
Learn About the Restatement Process: Essentially, when an existing self-employed 401k plan is restated to a self-directed solo 401k plan, neither a final Form 5500-EZ nor a Form 1099-R is required because you are simply changing plan providers from provider A to provider B (My Solo 401k Financial).
Voluntary After-Tax Solo 401k Contributions:
A solo 401k plan from My Solo 401k Financial allows for voluntary after-tax contributions. Following are some of the rules regarding this type of contribution:
- Voluntary after-tax solo 401k contributions fall under the employee (salary deferral) contribution umbrella.
- This type of contribution is not considered employer (profit sharing) contributions, so the contribution is not tax-deductible because it is considered made with post-tax dollars.
- When voluntary after-tax solo 401k contributions are converted to a Roth IRA or the Roth Solo 401k, the conversion has to be documented in writing by completing a conversion Form ( the IRS will expect to see a copy of this form upon request), and a Form 1099-R has to be issued to report the conversion whether taxable or not. This reporting is covered by our annual service and fee.
- Voluntary after-tax solo 401k contributions can be distributed and thus converted at any time. This is why the conversion of voluntary after-tax solo 401k contributions has been dubbed the “mega-backdoor Roth solo 401k.”
- There is a lesser-known rule called the “overall 415 limits.” The overall 415 limit for 401(k) plans including solo 401k plans. For 2019, the overall limit is $56,000. The overall limit looks at the total annual additions to all of a participant’s accounts in plans maintained by one employer and includes not just their salary deferrals, but also matching contributions, allocations of forfeitures and other amounts. Voluntary after-tax solo 401k contributions are subject to the overall annual limit (“The 415 Limit) $56,000 for 2019.
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