Maxing out a Solo 401K + ROTH-IRA + Spousal ROTH-IRA
Hello,
I need help understanding my retirement contributions limits for tax year 2015. Specifically I need to know if I can max out contributions to my Solo 401k, my wife’s Spousal Roth-IRA and my Roth-IRA. My gross income for 2015 was $178,000. I’m married and will be filing jointly, my wife does not work. Our 2015 income is below the Roth-IRA Income Limits for Married Filers ($183,000) so this limit should not be an issue. Here’s what we’d like to do:
I will max out my Solo 401k:
$18k + $6k catch-up ($24k total) (I’m over age 50) (Employee Deferral)
$ ?? amount not determined yet due to taxes not being finished (25% of earned income – Defined Contribution Plan)
I would like to max out my wife’s Spousal Roth-IRA:
$5,500 (wife is under age 50)
I would also like to max out my Roth-IRA:
$6,500 (with catch-up) (I’m over age 50)
My problem is my tax guy told me that if I max out my 401k then whatever amount I contribute to my Roth-IRA will need to be subtracted from my Solo 401k Employee Deferral portion so those two contributions do not exceed $24,000 (I’m allowed the catch-up because I’m over age 50). So is it true what my tax guy told me? I’m confused because some of the stuff I read online makes me think that I can max out all 3 retirement plans.
Thanks,
Stephen
Permalink Submitted by Alan - IRA critic on Sat, 2016-03-05 00:12
Tax guy was incorrect or you misunderstood him. A Roth 401k contribution counts toward the 24k limit, but a Roth IRA contribution does not. But you need to be sure that your modified AGI (not the same as AGI) is actually under 183k or your Roth IRA contributions for both spouses will be limited.
Permalink Submitted by Stephen Gregory on Sat, 2016-03-05 17:39
Possibly but the words “Roth-401k” was never mentioned in my meeting with my CPA. I’ve tried searching (without any luck) for evidence that would support that a married couple filing jointly with an annual income below $183,000 (2015 tax year) could max out a Solo 401k, Roth-IRA and a Spousal Roth-IRA. Does anyone know where I can find this information? I’d like to have some evidence to support or disallow maxing out all three retirement accounts before I meet with my CPA again.
Permalink Submitted by Alan - IRA critic on Sat, 2016-03-05 17:59
Check p 40-41 of Pub 590 A attached. Note that for a Roth contribution and a spousal Roth contribution there are only two requirements, having taxable compensation (earned income) and having MAGI in or below the phaseout range. The only effect a solo K contribution has on this is that a pre tax contribution lowers MAGI and may help bring it down below the phaseout range, while a Roth 401k contribution does not. Accordingly, this reference supports maxing out all 3 accounts as long as your income is within the parameters. https://www.irs.gov/pub/irs-pdf/p590a.pdf
Permalink Submitted by Stephen Gregory on Tue, 2016-03-08 00:55
Alan,Thanks for helping me with this… it’s greatly appriciated! Steve