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  • Funding Solo 401k Voluntary After-Tax

    5 Replies
  • Top SubjectSolo 401k Contributions,Transfers/Rollovers
    Top ForumsSolo 401k Contributions, Transfers/Rollovers

    Ryan M
    Top SubjectSolo 401k Contributions,Transfers/Rollovers

    April 4, 2022 at 5:55 pm

    Hello All, thanks again for being so responsive to your customers.

    I plan to make my first after-tax contribution since I have set up my Solo 401k. I am aware of this article specific to making the contribution, as my Solo 401k is established with Fidelity:

    Making the Solo 401k Voluntary After-Tax Contribution to the Fidelity Investments Non-Prototype (Investment Only) Brokerage Account

    My first question pertains to the importance of the source account in how I am funding the Solo 401k after-tax subaccount. While I have a business checking account, can I write a check from my personal account or another if I moved funds out of the business checking? Does it matter as a sole member LLC taxed as a sole proprietor?

    I spoke with Fidelity, and they mentioned I can take settled liquid funds from my taxable brokerage account and transfer them in, if this is true, it would be convenient. Regarding ACH, I have my personal bank account already linked to Fidelity, would I be able to fund the after-tax subaccount through this connection?

    I also would appreciate clarification on once the money is sitting in the after-tax subaccount, can I just have Fidelity immediately transfer to my Roth IRA?

    Thank you in advance

    Ryan M
  • George Blower

    Top SubjectSolo 401k,Solo 401k Contributions
    Top ForumsSolo 401k, Solo 401k Contributions

    George Blower

    George Blower

    Top SubjectSolo 401k,Solo 401k Contributions

    April 6, 2022 at 4:47 am

    @RyanM

    Top SubjectSolo 401k Contributions,Transfers/Rollovers

    Thank you for posting your questions!

    1) This confirms that from a Solo 401k perspective one may make solo 401k contributions from either a business or personal bank or brokerage account.

    2) This confirms that one may make a voluntary after tax Solo 401k contribution to a separate voluntary after tax sub-account and then immediately transfer the funds to a Roth IRA. See more about this process here: https://www.mysolo401k.net/solo-401k/how-to-process-a-fidelity-investments-conversion-of-voluntary-after-tax-solo-401k-funds-non-prototype-account-to-a-fidelity-roth-ira/

    • Top SubjectSolo 401k Contributions,Transfers/Rollovers
      Top ForumsSolo 401k Contributions, Transfers/Rollovers

      Ryan M
      Top SubjectSolo 401k Contributions,Transfers/Rollovers

      April 14, 2022 at 8:12 pm

      @george

      George Blower

      Top SubjectSolo 401k,Solo 401k Contributions

      Thank you. One follow up question.

      Fidelity moved money into my after-tax account from funds in my brokerage account for my Solo401k contribution for 2021. I thought that this inital contribution to the after-tax has no reporting requirements, but only when doing a conversion.

      Do I need to take action on reporting that after-tax contribution, even if it just sits in my after-tax account?

      I guess I am a bit confused since there is a deadline of making that initial contribution to the after-tax account, but what record exists that the contribution was made?

      Thank you for any clarification.

      Ryan M
      • George Blower

        Top SubjectSolo 401k,Solo 401k Contributions
        Top ForumsSolo 401k, Solo 401k Contributions

        George Blower

        George Blower

        Top SubjectSolo 401k,Solo 401k Contributions

        April 15, 2022 at 2:12 am

        For a self-employed person who reports his or her self-employment income on the 1040 (e.g. because he/she is a sole proprietor or single-member LLC taxed as a sole proprietor), there is no place to report the after-tax contribution on the Form 1040 income tax return.

        • Top SubjectSolo 401k Contributions,Transfers/Rollovers
          Top ForumsSolo 401k Contributions, Transfers/Rollovers

          Ryan M
          Top SubjectSolo 401k Contributions,Transfers/Rollovers

          June 17, 2022 at 11:53 am

          Hi

          @george

          George Blower

          Top SubjectSolo 401k,Solo 401k Contributions

          I am still a bit confused, hoping for additional clarity. From what I understand, the initial contribution for 2021 was due before the business tax return deadline. However, the conversion into my Roth IRA from my after-tax subaccount can happen after. Once that is done I fill out the form here – https://www.mysolo401k.net/after-tax-solo-401k-to-roth-ira-conversion-form/ and mysolo401k will prepare the document in February of 2023 for my return in 2022? The conversion is recorded for the year it was made, so technically it’s a 2022 conversion, but reported in taxes for 2022? My 2022 contribution, once converted, is reported in February of 2024?

          Is the above correct?

          What if I make my 2022 contribution within the same calendar year?

          Thank you for any further explanation.

          Ryan M
          • George Blower

            Top SubjectSolo 401k,Solo 401k Contributions
            Top ForumsSolo 401k, Solo 401k Contributions

            George Blower

            George Blower

            Top SubjectSolo 401k,Solo 401k Contributions

            June 21, 2022 at 3:20 am

            The conversion is reported for the calendar year in which it occurred.

            For example, if a conversion occurs in 2022, the 1099-R is issued for 2022 (and sent in 2023 for filing with the 2022 tax return) notwithstanding that the source of the converted funds may have been a contribution for 2021.

            If a voluntary after-tax contribution for 2022 is made during the 2022 calendar year and then converted on or before 12/31/2022, the amount of such conversion will be included on the 2022 1099-R (which may also include amounts that were previously converted earlier in 2022 in connection with contributions made for 2021).

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