Pre-tax and Post-tax IRA conversion to solo 401K

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dwightshrute
Posts: 3
Joined: Fri Oct 06, 2017 8:15 pm

Pre-tax and Post-tax IRA conversion to solo 401K

Post by dwightshrute » Fri Oct 06, 2017 8:48 pm

I have an IRA at a brokerage company I am not pleased with. There is $38K in the account with pre-tax contributions and $1600 with post-tax contributions that I have been making for the past few months. I am currently working on doing a direct rollover into a solo 401k with a different brokerage company (Charles Schwab). In fact, I opened up 3 new accounts there: solo 401K, Traditional IRA, and Roth IRA. My goal is after I direct rollover the entire $39,600 then to be able to do a backdoor roth IRA for the maximum amount this year. My concern is how will the post tax contributions from this year be handled? Will I need to direct roll over the 1600 again from the solo 401K to the new IRA and then contribute an extra 3900 to it? Or will I be unable to rollover the crappy IRA to the solo 401K?

retiredjg
Posts: 30851
Joined: Thu Jan 10, 2008 12:56 pm

Re: Pre-tax and Post-tax IRA conversion to solo 401K

Post by retiredjg » Sat Oct 07, 2017 12:26 pm

dwightshrute wrote:
Fri Oct 06, 2017 8:48 pm
I have an IRA at a brokerage company I am not pleased with. There is $38K in the account with pre-tax contributions and $1600 with post-tax contributions that I have been making for the past few months. I am currently working on doing a direct rollover into a solo 401k with a different brokerage company (Charles Schwab). In fact, I opened up 3 new accounts there: solo 401K, Traditional IRA, and Roth IRA. My goal is after I direct rollover the entire $39,600 then to be able to do a backdoor roth IRA for the maximum amount this year. My concern is how will the post tax contributions from this year be handled? Will I need to direct roll over the 1600 again from the solo 401K to the new IRA and then contribute an extra 3900 to it? Or will I be unable to rollover the crappy IRA to the solo 401K?
The $38k can be rolled into the Solo 401k. The $1,600 cannot go into the 401k at all - this is not allowed by law.

Once you drain the $38k into the 401k, the only thing left will be the $1,600 in after tax contributions. That can be transferred into the new IRA and converted to Roth IRA with no tax due. Or you can finish the rest of your annual contribution and then convert to Roth. This assumes that you have nothing else in an IRA (other than a Roth IRA). That includes SEP IRA and SIMPLE IRA. If you have other IRAs, things get messed up and you don't want to go there.

The non-deductible contributions (up to $5,500 if you are under 50) are documented on your taxes using Form 8606 (front side). The conversion step is documented on the back side of the same form. It is important that you understand this form ahead of time. I suggest you download one and pencil through it.

dwightshrute
Posts: 3
Joined: Fri Oct 06, 2017 8:15 pm

Re: Pre-tax and Post-tax IRA conversion to solo 401K

Post by dwightshrute » Sat Oct 07, 2017 2:23 pm

Thanks! That is the exact information I needed.

retiredjg
Posts: 30851
Joined: Thu Jan 10, 2008 12:56 pm

Re: Pre-tax and Post-tax IRA conversion to solo 401K

Post by retiredjg » Sat Oct 07, 2017 2:34 pm

There are many threads (use the google search box above) and some information in the Wiki about using the back door. A lot of people mess this up. I suggest you do a good amount of reading (if you have not already) before doing this. Good luck!

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