403(b) Plan Impact on Mega Backdoor Roth Solo 401k Strategy

Just as with a solo 401(k) plan, a 403(b) plan lets employees defer some of their salary into individual accounts. Also, a 403b allows for designated Roth contributions. Salary contributed to a Roth account is taxed currently but is tax-free (including earnings) when distributed.

Jus like solo 401k plans, some 403b plans also allow for employee voluntary after-tax contributions. While Voluntary after-tax contributions are also made with post tax dollars just like designated Roth contributions, voluntary after-tax contributions are not designate Roth contributions. For instance, earnings on the Roth designated contribution grow tax free whereas earnings that accumulate in the voluntary after-tax account are taxable upon distribution.

Individuals who also participate in a solo 401k plan because they are self-employed on the side, for example, will often make solo 401k voluntary after-tax contributions. However, you must keep in mind the impact of 403b contributions on solo 401k contributions including voluntary after-tax contributions. Because of the quirky 403 contribution rules which also impact both the voluntary after-tax contributions and profit sharing contributions in addition to employee contributions, you will need to subtract the 403b contribution amount from your total solo 401k contribution calculation amount.

Example

For 2022, Tom contributes to his 403b employer plan and also contributes to his solo 401k since he is also self-employed on the side.

Tom contributes $15,000 to his 403b based on compensation from his school employer.

He now wishes to make employee voluntary after-tax contributions to his solo 401k based on $75,000 of W-2 wages generated from his self-employed business LLC which is taxed as an S-corp.

Even though the solo 401k maximum contribution limit for 2022 is $61,000, Tom won’t be able to make the full contribution amount to his solo 401k because the 403b contribution rules require the amount already contributed to the 403b–the $15,000 in Tom’s case–subtracted from the allowed solo 401k contribution amount. As a result, the maximum voluntary after-tax contribution that Tom may make to his solo 401k for 2022 is $46,000 ($61,000 minus $15,000).

Can I submit an expense report to my ROBS Business?

Rollover as Business Startup (ROBS 401k) FAQ – Can I submit an expense report to my ROBS Business?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

ROBS 401k FAQ: Submitting Expense Report to ROBS C-corp

Question:

I previously funded my Financial Advisory business via a ROBS 401K.  I recently took a client out to lunch but forgot my business debit card so had to pay with my personal card.  Can I submit an expense report to be reimbursed by the business? 

Response:

While it is a good practice for all businesses (including those that were not funded with retirement funds) to pay for businesses expenses from the business account rather than using personal funds, it is acceptable on an exception basis to be reimbursed by the corporation for legitimate and reasonable business expenses of the type that any employee would be reimbursed for and which are paid with personal funds. 

Can I set up a solo 401k if my business is owned by my living trust?

Solo 401k Question Answered – Can I set up a solo 401k if my business is owned by my living trust?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

Solo 401k Question:

Can I set up a Solo 401k if my self-employed business is owned by a trust set up by my wife and me?

RESPONSE:

Ultimately, if a self-employed individual owns their business for estate planning purposes through a trust, such a person may still open a Solo 401k for their business provided that such person is reporting earned self-employment income (e.g. file a schedule C, or receive a W-2 wage from a self-employed business taxed as an S-corporation) and further provided that there are no non-owner/non-spouse full-time w-2 employees working for any business owned by such person or a spouse (if any).

Does my day job 401k match count towards my Solo 401k limit?

Self-employed Solo 401k FAQ Answered – Does my day job 401k match count towards my Solo 401k limit?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

Solo 401k FAQ: Does my day job 401k match count towards my Solo 401k limit?

RESPONSE:

In a scenario where a self-employed individual has a solo 401k and also participates in a 401k plan at job, contributions made to a 401k plan sponsored by an unrelated employer (e.g. “day job” 401k plan) don’t reduce the amount of contributions that may be made to a Solo 401k.

Click HERE to learn more about Solo 401k contributions.

What is a reasonable salary for my ROBS Business?

Rollover as Business Startup (ROBS 401k) FAQ – What is a reasonable salary for my ROBS Business?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

ROBS 401k FAQ: Reasonable Salary Considerations

I am leaving my high-paying position as a Vice President at Fortune 500 company to start a cupcake business funded via a ROBS 401K Business Financing plan.  I also have a couple of kids in private school.  Based on my work experience and my need, I feel that it is justified for me to continue to receive the same compensation that I received in my prior position from my cupcake business – does this sound right?

RESPONSE:

No – while you may receive a reasonable salary from the ROBS-funded C-corporation once it is generating income to justify your salary, the considerations in terms of what is a reasonable don’t include the compensation that you received for prior unrelated work history nor your personal expense needs.

How does a sole proprietor calculate the Solo 401k contribution limits?

Self-employed Solo 401k FAQ: How does a sole proprietor calculate the Solo 401k contribution limits?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

Solo 401k Question: What income determines my solo 401k contribution limits?

RESPONSE:

Great Question!
One of the top reasons that our clients sign up with us is the fact that a solo 401(k) plan has the highest contribution limits for any defined contribution plan available to self-employed individuals.

We are fielding questions every day from our clients with regard to determining how much they can contribute to the Solo 401k plan.

There are different factors that impact how much a Solo 401k owner can contribute to a solo 401k: including age, whether contributions are made to another plan like a day job 401k plan, self-employed compensation, etc.

For a self-employed person who reports earned self-employment income on Schedule C of Form 1040, a pre-calculation has to be run to determine self-employment compensation: specifically, self-employment compensation is equal to line 31 of Schedule C LESS one-half OF self-employment tax.

For 2022, the solo 401(k) owner can contribute 100%, dollar for dollar of their self-employment compensation up to $20,500 (plus an additional $6500 if 50 or older) as an employee contribution (assuming that such solo 401k owner is making contributions to another plan like a day job 401k plan).  In addition, the solo 401k owner can make an employer contribution equal to 20% of that same number provided that the total amount of Solo 401k contributions (including employee, employer, and/or voluntary after-tax) don’t exceed the lesser of the self-employment compensation or the overall limit (e.g. $61,000 for 2022 or $67,500 if 50 or older).

IRS Joint Life Expectancy Table for Solo 401k Required Minimum Distributions (RMD)

Using the joint life expectancy table generally results in a lower RMD amount. This table applies for distribution calendar years beginning on or after January 2, 2022. Use the IRS joint life expectancy table to calculate your annual solo 401k required minimum distribution (RMD) If you have a spouse who’s more than 10 years younger than you, and your spouse is listed as the sole beneficiary of your solo 401k account.

CLICK HERE to view the solo 401k joint life expectancy table.

You may also use the My Solo 401k Financial on-line RMD calculator to calculate your RMD.

IRS Uniform Lifetime Table for Solo 401k Required Minimum Distributions (RMD)

This table applies for distribution calendar years beginning on or after January 2, 2022. Use the IRS uniform lifetime table to calculate your annual solo 401k required minimum distribution (RMD) if you are single, or if married and your spouse is the beneficiary of the solo 401k and is NOT more than 10 years younger than you.

CLICK HERE to view the solo 401k uniform lifetime table.

You may also use the My Solo 401k Financial on-line RMD calculator to calculate your RMD.

To calculate your annual solo 401k RMD, the IRS uses a formula that includes the total balance of your solo 401k plan, your age, and your life expectancy. It then divides your balance total by your life expectancy factor to determine the amount you must distribute from your solo 401k. (Your life expectancy factor is the age to which you’re expected to live given your current age.). Your RMD life expectancy factor changes every year, resulting in a different RMD amount each year.

Can I make Mega Backdoor Roth Solo 401k contributions with a personal check?

Solo 401k FAQ Answered- Can I make Mega Backdoor Roth Solo 401k contributions with a personal check?

Please check out this good question from our Daily Live Zoom call. Subscribe to our YouTube Channel to get notifications of our Daily FAQs.

Mega Backdoor Roth Solo 401k Question: I opened six accounts for me and my husband under the solo 401(k).  Can I find those accounts with a personal check?

RESPONSE:

Good question!  We presume that the question is referring to a Mega Backdoor Roth Solo 401k setup where there are pre-tax, Roth and After-tax sub-accounts for each of you.  Moreover, we understand that the question is referring to making solo 401k contributions.

Given this understanding is correct, a solo 401k owner can certainly make Solo 401k contributions via a personal check.

See more regarding Solo 401k contributions.

  •  

  • Popular Video

  • ROBS 401k Funding Process

  • Solo 401k Contributions Including Mega

  • Checkbook IRA LLC

  • About MySolo401k

    We help our clients take control of their retirement money. Our products and services provide our clients the freedom to invest their retirement savings in their own business as well as alternative investments such as real estate, private companies, promissory notes, precious metals, tax liens and equities.
    Learn more

    Connect with us

  • We’re here to help.

    Call: 800-489-7571

    Monday-Friday

    8:00 am - 4:00 pm PT

    Why us?
MENU