Solo 401k After tax rules

Submitted by Ryan Smith on Fri, 2021-07-16 17:35

We have a 40 year old client that has outside 1099 income. They are deferring $15,000 to their 403b, but are receiving a net income of $36,000 as 1099. With the Solo we can then defer another $4500 as employee deferral. The question we have is on the after tax portion. The plan allows for 100% contributions up to your income. We may not know the exact net income until taxes are filed. Can you do the after tax portion up until the filing deadline for the prior year or does it have to be in the calendar year? The goal would be to then do in plan Roth conversion. Thanks.



Submitted by Alan - IRA critic on Fri, 2021-07-16 17:45

This question came up about 3 weeks ago. The following response from spiritrider summarizes the situation.
“There is very little detailed IRS guidance on employee after-tax contributions.
Therefore, this will be controlled by the 401k plan document and plan procedures.
As is commonly done, in the absence of explicit guidance, plans will use inference of the closest tax code, IRS regulations and guidance.
In all plans I am familiar, the same rules apply to employee after-tax contributions as employee deferrals.
Such contributions must be deducted from compensation with “pay date” on or before 12/31 of the year the contribution is for.”

Submitted by Ryan Smith on Fri, 2021-07-16 19:33

I agree now that you say it is employee deferral of their compensation.  That makes sense.  Thanks.

Submitted by William Tuttle on Sat, 2021-07-17 13:24

Additional limitations that make or may not apply in these specific circumstances. 
A 403b is considered controlled by the participant. All 403b (employee + employer) annual additions must be aggregated with all (employee + employer) annual additions to employer retirement plans of businesses > 50% owned by the 403b participant.
Self-employed employer contributions are not compensation. Employer contributions both reduce compensation and reduce the remaining annual addition balance.
The client’s 2021 maximum one-participant 401k employee after-tax contributions = the lessor of
$58K – 403b ($15K employee deferrals + any employer contributions) – one-participant 401k ($4.5K employee deferrals + any employer contributions) = $38.5K – any 403b employer contributions – (any one-participant 401k employer contributions).
$36K – $4.5K employee deferrals – (any employer contributions * 2)

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