Hello,
Thank you for your help in advance.
I have a 60 yo business owner client who is looking to utilize roth, but is phased out on individual level.
I wonder if it’s possible for a solo business owner to set up a solo-k with roth and after tax feature.
Then, take in-service distribution out to invest as they desire.
would it be possible? also if so, could you recommend any TPA?
Thank you.
There is no income phaseout for traditional IRA contributions. Only the deduction if the client or spouse are an active participant in an employer retirement plan.
The client can make non-deductible traditional IRA contributions and then do a Roth conversion.
When this is done with little to no pre-tax IRA balances in all traditional, SEP and SIMPLE IRA accounts on 12/31. There is little to no tax liability.
This is commonly referred to as a Backdoor Roth.
A standard one-participant 401k plan offering from mainstream low cost brokerages:
Would allow rolling over any pre-tax balances facilitating the Backdoor Roth.
Would allow making pre-tax employee deferrals to a traditional account or post-tax employee deferrals to a designated Roth account.
Would allow making employer contributions to a traditional account.
Like Alan, it is not clear to me what you are trying to accomplish.
Permalink Submitted by Alan - IRA critic on Wed, 2021-06-09 16:24
It is possible, but many of the larger prototype plan providers do not offer all these options. Client may need to find a non prototype plan provider. But what is the point of making these contributions, just to turn around and take a distribution? The point of a Roth 401k or doing a mega back door Roth from after tax contributions is to leave the money in the Roth to generate tax free gains for a long period.