Single K Roth 401K

Submitted by Keith Toussaint on Thu, 2014-08-14 16:26

CPA client created a Roth 401K for 1099 income. He is now a W2 EE and participant in an ER sponsored traditional 401k and will make his maximum contribution. He will be 70 1/2 January 2015. His MFJI is >178k. This year, his 1099 income will be $5,000. He doesn’t expect 1099 income to continue after this year so he and I were thinking of changing the registration to an Individual ROTH IRA. He wants to know;

1. Can he make a full Single K “Roth 401k” contribution with his 1099 income this year? Or, because he’s an EE participating in a ER sponsored plan and income > than $178k disallows him from doing so.

2. He also said,If he continues his Single K Roth 401K (w/o changing to an individual Roth) He will be required to make distributions from his Single K Roth 401K when he turns 70 1/2? Or, can he continue the single K Roth 401K and not take distributions.



Submitted by Alan - IRA critic on Thu, 2014-08-14 16:54

  1. If he uses up his max elective deferral limit (23k with catch up) in the W2 plan, he will not be able to make any elective deferral to the Roth 401k. That would leave him with only the profit sharing contribution of 20% of net income from SE.   His MAGI has no affect on 401k elective deferral limits including Roth 401k, but it will limit any Roth IRA contributions.
  2. 2015 will be his first RMD year for the Roth 401k, so if he wants to avoid RMDs from that balance, he needs to roll it over to a Roth IRA before 1/1/2015. He cannot avoid the RMDs if he has a balance in the soloRoth 401k. His plan probably allows him to roll over as much of the balance as he wishes, and by doing that the plan RMD would be very small since it will be based on the prior YE balance. But if the 1099 net earnings are going to be small going forward and he will continue to max out the W2 deferrals, he might consider terminating the soloK when he rolls out the balance before year end. Best decision depends on how long he will work at both jobs and where he wants to place his elective deferral limit.

Submitted by Keith Toussaint on Thu, 2014-08-14 17:03

Thank you Alan. Very helpful and timely.

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