ForumsMega Backdoor Roth Solo 401kHow to make voluntary after-tax contribution? (S-Corporation)

Forums Solo 401k Mega Backdoor Roth Solo 401k How to make voluntary after-tax contribution? (S-Corporation)

  • How to make voluntary after-tax contribution? (S-Corporation)

    Mark Nolan replied 4 months ago 2 Members · 7 Posts
  • 6 Replies
  • Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions
    Top ForumsMega Backdoor Roth Solo 401k, Solo 401k Contributions

    Martin P
    Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions

    December 8, 2023 at 12:09 pm

    Scenario:

    Let’s say $100k W2 wages from S-Corporation, no other jobs. Employee contributions maxed ($22,500 plus over 50 so $7,500 catch up), and employer contributions will be maxed (so 25% of $100k = $25k)

    With the overall limit at $66,000 plus $7,500 catch up, there will be $66,000 minus $22,500 minus $25,000 equals $18,500 left remaining for which I’d like to do voluntary after-tax contribution and subsequently mega backdoor Roth.

    Can I just write a check (or electronic transfer) from my personal bank account to my voluntary after-tax 401k account? I think I did that last year, but this is the first year I have been running an S-Corporation.

    My CPA thought that the voluntary after-tax contribution might need to be done through payroll.

    Thanks

    Martin P
  • Mark Nolan

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

    Mark Nolan

    Mark Nolan

    Top SubjectSolo 401k,Solo 401k Contributions

    December 10, 2023 at 7:54 pm

    Your calculation is correct.

    From a Solo 401(k) perspective, what matters is that the contributions (employee and employer) are made based on W-2 wages. Therefore, regardless if the funds first flow from the Corporation bank account to your personal bank account and then to the solo 401k plan, it will still satisfy the solo 401k contribution rules (i.e., both the employee and employer contributions were made by your business tax return due date and were based on W-2 wages from the S-corporation).

    For how to report solo 401k contributions when your self-employed business is taxed as an S-corporation or as a C-corporation, see the following. https://www.mysolo401k.net/corporation-calculating-solo-401k-contributions-corporation/

  • Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions
    Top ForumsMega Backdoor Roth Solo 401k, Solo 401k Contributions

    Martin P
    Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions

    December 11, 2023 at 4:35 am

    Thank you Mark for the confirmation regarding my calculations and the pre-tax contributions. My question was actually about the voluntary after-tax contributions though.

    Martin P
  • Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions
    Top ForumsMega Backdoor Roth Solo 401k, Solo 401k Contributions

    Martin P
    Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions

    December 13, 2023 at 12:33 pm

    I am not 100% certain I know how to interpret that answer, so I’ll ask a more specific question:

    Nothing has been contributed to my solo 401k’s voluntary after-tax account so far this year (via payroll or otherwise).

    Can I make a $18,500 transfer now, directly from my personal bank account? Not business bank account, and doesn’t have to be via payroll?

    Martin P
    • Mark Nolan

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

      Mark Nolan

      Mark Nolan

      Top SubjectSolo 401k,Solo 401k Contributions

      December 20, 2023 at 10:38 am

      Whether pre tax, Roth or voluntary after-tax solo 401k contributions, yes they can all first flow from payroll to your personal bank account and then from your personal bank account to your solo 401k.

      What matters is that you had the W-2 wages to support the contributions–whether pre tax, roth or voluntary after-tax solo 401k contributions.

      Ultimately, it is as simple as telling the payroll company to send the voluntary after-tax contribution to the specific voluntary after-tax subaccount of the self-directed 401k. Since this voluntary after-tax contributions will not need to be reported on the W-2 (it’s optional report voluntary after-tax contributions), the payroll company does not need to track it for W-2 reporting purposes. If the payroll company cannot accommodate this, you can simply send the money directly to the voluntary after-tax subaccount.

      If you want to report the employee contributions on your w-2 you can take the following steps: (i) tell the payroll company what you will contribute so that payroll company can report on w-2 (e.g., per the w-2 instructions pre-tax elective deferrals are not included in Box 1 of the w-2 and are listed in Box 12 and the “Retirement Plan” field is checked in Box 13) & (ii) “park” the money (e.g. in personal acct) and then make sure that you open solo 401k bank or brokerage account & deposit the contributions by the business tax return deadline including any timely filed extension.

      Also, per the w-2 instructions, reporting on voluntary after-tax contributions is optional.

  • Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions
    Top ForumsMega Backdoor Roth Solo 401k, Solo 401k Contributions

    Martin P
    Top SubjectMega Backdoor Roth Solo 401k,Solo 401k Contributions

    December 18, 2023 at 10:53 am

    Could I press you for an answer please, since part of my original question is still unanswered?

    My CPA is saying that, in the case of an S-corporation, voluntary after-tax contributions cannot be made from a personal account. They have to be from the business.

    Your answer seems to be contradicting that, so I wanted to be certain whether or not I am correctly interpreting your message.

    Thanks

    Martin P

Related Blog Posts