Personal Investments • Re: Can You Double Dip to Justify Mega Backdoor Roth and Roth IRA Contributions?

Yes. You can do the same if you are a W2 employee, as your after tax and Roth 401(k) contributions still appear in box 1.

Thank you. So why am I seeing answers like this one on MySolo401k.net's forum?

https://mysolo401k.net/mycommunity/foru ... ontribute/

"provided that one can’t use the same compensation to justify compensation to both a Solo 401k and IRA"

And I see some other similar responses there. They are very expert on these subjects. So I'm hesitant to just disregard their answers. Hopefully I'm just misunderstanding something.

Are they talking about pre-tax 401k contributions?

Because this section of pub 590-A seems unambiguous:

Self-employment income. If you are self-employed (a
sole proprietor or a partner), compensation is the net
earnings from your trade or business (provided your per-
sonal services are a material income-producing factor) re-
duced by the total of:
• The deduction for contributions made on your behalf
to retirement plans, and
• The deduction allowed for the deductible part of your
self-employment taxes.

Note the word I bolded.

Look at the first 2 posts in this thread:

https://mysolo401k.net/mycommunity/foru ... ributions/

It seems like the OP is asking almost the exact same question I'm asking here. But the response says "you would need to have at least have other sources of income (not necessarily self-employment income) to justify the Roth IRA contribution". And here he is explicitly asking about Voluntary After-Tax Solo 401(k) contributions (not Pre-Tax) and Roth IRA, not Traditional IRA.

I don't know what to tell you. Here's pub 560:

Net earnings from self-employment. For SEP and qualified plans, net earnings from self-employment are your gross income from your trade or business (provided your personal services are a material income-producing factor) minus allowable business deductions. Allowable deductions include contributions to SEP and qualified plans for common-law employees and the deduction allowed for the deductible part of your self-employment tax.
Net earnings from self-employment don’t include items excluded from gross income (or their related deductions) other than foreign earned income and foreign housing cost amounts.

These are not ambiguous definitions. Both pub 560 (governing workplace plans) and pub 590-A (governing IRAs) are clear in their definitions of self employment compensation for the purpose of calculating contribution limits. Neither reduces the limit by non-deductible contributions to the other.

Furthermore, this is entirely consistent with the uncontroversial stance that a W2 employee can do exactly the same thing, as pub 590-A says compensation for determining your IRA contribution limit is wages shown in box 1, and box 1 is not reduced for after tax or Roth 401k contributions.

Statistics: Posted by toddthebod — Fri Sep 06, 2024 11:52 pm

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