i401k Opportunity and Limitations

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Topic Author
Pipeline
Posts: 1
Joined: Sun May 02, 2021 11:38 am

i401k Opportunity and Limitations

Post by Pipeline »

Thank you for any and all input.

I have a rollover IRA from prior 401k accounts that is keeping me from making backdoor Roth conversions. My wife recently started her own business and we’d like to open an individual 401k where I can participate as a spouse so I can do a reverse rollover of my IRA. I’m assisting with the business and can receive W-2 income but I can’t be an owner (law firm). The business currently doesn’t have any other employees.

Here’s the part that’s confusing me. She plans to enter into a partnership with another solo firm in a couple months where her corporation will be one of the two partners. The partnership will have employees and will likely offer its own 401k plan.

Will we be able to continue using the corporation’s i401k plan after the partnership’s 401k plan is offered? If we can't continue to make contributions, can we at least leave it open?

The i401k appears to be my best option to deal with my rollover IRA. I can work at the partnership to receive W-2 income but would be part-time and not likely to exceed 500 hours per year, so not sure if I’d meet the eligibility requirements of the partnership’s 401k plan.

Other info:

I estimate our marginal tax rate as 32%+ and we’re not planning to use mega backdoor Roth contributions, so the vanilla plan at Vanguard looks acceptable (my Roth and rollover IRAs are at Vanguard and I’m fine with the available funds). We’re open to a customizable plan if it has other benefits that justify the increased costs and hassles. Thoughts on this appreciated.

Her corporation has not yet elected to be an S-corp but can if that makes a difference. We anticipate making the election before the 2021 tax filing but left the option open for now.

I need to wrap my head around the tax implications of receiving income for my work - tax deferrals vs. FICA under the corporation vs. FICA+ under the partnership. I welcome any thoughts or links to articles/posts.
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