Suggestion for a TPA for Solo 401k, after tax contributions

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spangler
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Suggestion for a TPA for Solo 401k, after tax contributions

Post by spangler »

I am looking to see if anyone has a suggestion for a good TPA for my Solo 401k. I currently use e-trade, but would like to take advantage of IRS 2014-54. None of the traditional Solo 401k providers seem to support separate tracking for after tax contributions so I'd like to go the TPA route. I'd love to hear your positive or negative experiences on TPAs.
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JamesSFO
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by JamesSFO »

Just one thought, with a Solo 401K you can POTENTIALLY deduct $53K off your taxes, it's a pretty compelling tax break.

Most of the TPA's that would handle a custom 401K to that degree will be pricey, is the spend really worth it?
Code Commit
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by Code Commit »

I agree with JamesSFO. For my personal circumstances, 18k per spouse and solid employer contributions are too much to pass up.

But, if you have done your analysis and want to go with the "Solo 401k with after-tax" route, then TFB posted a useful guide http://thefinancebuff.com/after-tax-con ... -401k.html
DSInvestor
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by DSInvestor »

spangler wrote:I'd like your help in confirming what I am about to do. I have a W2 job for a firm that has a Simple IRA plan. I intend to contribute $12,500 to that plan. I also have a sole proprietorship that has >$275K earnings.
The standard solo 401k plans will probably not allow for after-tax non-Roth contributions or in-service rollovers.

I see from another post that you have >275K of sole proprietor income. With this much income, you can max out a SEP-IRA for 52K. While the SEP-IRA contributions are pre-tax for the business, you can convert the assets in the SEP-IRA to Roth IRA at anytime after the contribution. Convert any amount you want. The conversion will give back the tax deduction and effectively allow you to put up to 52K/yr after-tax into Roth IRA. IMO, this would be far simpler and cheaper than using a custom solo 401k and TPA to give you after-tax contributions and in-service rollovers.

Solo 401k's catchup contribution would allow for slightly higher contribution limit than SEP-IRA if you were age 50+. I don't think SEP-IRA has the catchup contributions.

Do you have other IRA assets say in a rollover IRA? If yes, you can max out pre-tax contributions to Solo 401k and then convert from Rollover IRA to Roth IRA. This will give you the option to add to Roth space and work around the restrictions in your standard Solo 401k plan.
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spangler
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by spangler »

DSInvestor wrote:
spangler wrote:I'd like your help in confirming what I am about to do. I have a W2 job for a firm that has a Simple IRA plan. I intend to contribute $12,500 to that plan. I also have a sole proprietorship that has >$275K earnings.
The standard solo 401k plans will probably not allow for after-tax non-Roth contributions or in-service rollovers.

I see from another post that you have >275K of sole proprietor income. With this much income, you can max out a SEP-IRA for 52K. While the SEP-IRA contributions are pre-tax for the business, you can convert the assets in the SEP-IRA to Roth IRA at anytime after the contribution. Convert any amount you want. The conversion will give back the tax deduction and effectively allow you to put up to 52K/yr after-tax into Roth IRA. IMO, this would be far simpler and cheaper than using a custom solo 401k and TPA to give you after-tax contributions and in-service rollovers.

Solo 401k's catchup contribution would allow for slightly higher contribution limit than SEP-IRA if you were age 50+. I don't think SEP-IRA has the catchup contributions.

Do you have other IRA assets say in a rollover IRA? If yes, you can max out pre-tax contributions to Solo 401k and then convert from Rollover IRA to Roth IRA. This will give you the option to add to Roth space and work around the restrictions in your Solo 401k plan.

Thanks for asking. In 2015 I might take less 1099 income. That's still TBD, so I want to keep flexibility. Also my wife will switch over to receiving 1099 income in the nursing field. I am guessing about $60K a year. So I thought in particular the after tax contributions could make sense for the LLC she runs that through. Personally, I currently use e-trade which allows in services conversions from pre-tax to Roth IRA. So getting more Roth capacity is not an objective right now.
DSInvestor
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by DSInvestor »

spangler wrote: Thanks for asking. In 2015 I might take less 1099 income. That's still TBD, so I want to keep flexibility. Also my wife will switch over to receiving 1099 income in the nursing field. I am guessing about $60K a year. So I thought in particular the after tax contributions could make sense for the LLC she runs that through.
With income of 60K/yr, I think a standard solo 401(k) would work best particularly if she picks one that offers Roth Solo 401k. She maxes out the 18K of employer salary deferral (Roth or Traditional), ~12K employer which must be pre-tax, then either of you can convert from Traditional/Rollover to Roth IRA if you really want to give back the tax deduction. She can also use the backdoor into Roth IRA to get another $5500 of contribution space. That's approximately 35K contribution space on 60K of income.

Don't be afraid to contribute after-tax to taxable accounts. Taxable investing can be very tax efficient. QDI/LTCG receives preferential tax treatment. There are no limits to what you can contribute to taxable accounts and no need to pay TPA. Capital gains are deferred until you sell shares.
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DSInvestor
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by DSInvestor »

spangler wrote:Personally, I currently use e-trade which allows in services conversions from pre-tax to Roth IRA. So getting more Roth capacity is not an objective right now.
I think you added this while I was typing. I would not suggest any after-tax non-Roth contributions to 401k unless they can be immediately converted to Roth. Why deal with the tracking of the basis (the non-deductible contributions)?
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tmsmd1976
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by tmsmd1976 »

DSInvestor wrote:
spangler wrote:I'd like your help in confirming what I am about to do. I have a W2 job for a firm that has a Simple IRA plan. I intend to contribute $12,500 to that plan. I also have a sole proprietorship that has >$275K earnings.
The standard solo 401k plans will probably not allow for after-tax non-Roth contributions or in-service rollovers.

I see from another post that you have >275K of sole proprietor income. With this much income, you can max out a SEP-IRA for 52K. While the SEP-IRA contributions are pre-tax for the business, you can convert the assets in the SEP-IRA to Roth IRA at anytime after the contribution. Convert any amount you want. The conversion will give back the tax deduction and effectively allow you to put up to 52K/yr after-tax into Roth IRA. IMO, this would be far simpler and cheaper than using a custom solo 401k and TPA to give you after-tax contributions and in-service rollovers.

Solo 401k's catchup contribution would allow for slightly higher contribution limit than SEP-IRA if you were age 50+. I don't think SEP-IRA has the catchup contributions.

Do you have other IRA assets say in a rollover IRA? If yes, you can max out pre-tax contributions to Solo 401k and then convert from Rollover IRA to Roth IRA. This will give you the option to add to Roth space and work around the restrictions in your standard Solo 401k plan.
Wouldn't paying the tax on some or all of the 52K (now 53K if I recall) be rather significant?
DSInvestor
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Re: Suggestion for a TPA for Solo 401k, after tax contributi

Post by DSInvestor »

tmsmd1976 wrote: Wouldn't paying the tax on some or all of the 52K (now 53K if I recall) be rather significant?
Sure the tax cost would be significant at OP's level of income. OP has for himself/herself whether it makes sense to give up such a valuable tax deduction to get Roth space. I just wanted to provide another option for OP to get Roth space without the need for a TPA assuming he/she is willing to give up the tax deduction. SEP-IRA may work for his/her needs.

I prefer to get my Roth space by not giving up any tax deductions (i.e. max out traditional 401k contributions then look at Roth contributions front door or via backdoor. Folks who work for companies who offer employer plans with the option for after-tax non-Roth contributions and in-service rollovers can do the mega backdoor without giving up any tax deduction assuming they max out 18K of employee salary deferral to Traditional 401k. The after-tax non-Roth contributions are after the 18K max has been hit. It's different for self employed folks because the self employed person can contribute 18K employee salary deferral and employer profit share to reach the 53K limit.
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