In 2020, I have worked as both a sole proprietor / individual contractor with no employees and as a W2 part-time employee. I am 41 yrs old (under 50) and will have multiple streams of income in 2020:
Projected Total Income for 2020: $245K from all income streams
I currently have 4 retirement accounts open:
I would like to maximize my tax deductions this year and move as much money as possible into both after-tax and tax-deferred accounts.
My question includes:
What can and can't i do? My goal is to deduct / defer the maximum amount possible.
Note: I tried to do my research before asking this question. Here are some of the links I read:
Thanks for any help with this.
Critter-3's information regarding the 401(k) contribution limits is somewhat incorrect. The $57,000 limit for 2020 is a per plan limit, not a per individual limit. It's the $19,500 per-individual limit that applies just to employee elective deferrals and Roth contributions to all plans in which the individual participates (except for 457(b) plans which have a separate $19,500 limit).
I'm going to directly address the original questions, so some of this might repeat what has already been said:
The sum of your employee elective deferrals and Roth contributions to the solo 401(k) (traditional or Roth) and the 401(k) at your W-2 employer is $19,500. This limit is per-individual. Assuming that you contribute nothing to a plan at your W-2 employer, you can split a total of $19,500 employee elective deferral and employer contributions any way you like between the traditional and Roth accounts in the solo 401(k).
The $57,000 limit is a per-plan limit for employee and employer contributions combined, however your self-employment income of $100,000 is far from the amount that would support that much of a contribution unless your solo 401(k) plan permits after-tax contributions that would take you beyond the $19,500 of elective deferrals and Roth contributions. Assuming exactly $100,000 of net profit from self-employment, your maximum employer contribution to the solo 401(k) would be $18,587 (all to the traditional account). If the plan permits after-tax contributions (and it might since you mentioned a MEGA backdoor Roth which involves after-tax contributions to a 401(k)), you could contribute the remainder of the $57,000 limit, $18,913 as an after-tax contribution to the traditional account in the solo 401(k).
You have enough compensation to also contribute the maximum $6,000 to a traditional IRA, but with your participation in the solo 401(k) that traditional IRA contribution would be nondeductible because your AGI will be above the limit for deductibility of the traditional IRA contribution. Your AGI will be too high to be able to contribute to a Roth IRA.
If your solo 401(k) plan does not permit after-tax contributions, the maximum that you will be able to contribute is $38,087 to the solo 401(k) ($19,500 employee and $18,587 employer) and $6,000 nondeductible to a traditional IRA for a total of $44,087. If your 401(k) plan does permit after tax contributions, add to that the $18,913 that I mentioned earlier. Depending on the plan rules, you might be able to make a rollover from the after-tax sub-account to a Roth IRA, but you likely will have to leave the other amounts and any earnings on those other amounts in the solo 401(k) until you reach age 59½.
Deferring income and getting money into Roth accounts are mutually exclusive. Even if you could make a distribution of the employer contributions before age 59½, whatever deduction you got for those contributions would be offset by the taxable amount of the rollover to a Roth IRA (or an In-Plan Roth Rollover, if the solo 401(k) plan permits).
You need to read the solo 401(k) plan agreement to find out what is and is not permitted by the plan.
There is one Max contribution to ALL 401K options over all platforms ...
The total solo 401(k) contribution limit is up to $57,000 in 2020. There is a catch-up contribution of an extra $6,500 for those 50 or older.
To understand solo 401(k) contribution rules, you want to think of yourself as two people: an employer (of yourself) and an employee (yes, also of yourself). Within that overall $57,000 contribution limit, your contributions are subject to additional limits in each role:
As the employee, you can contribute up to $19,500 in 2020, or 100% of compensation, whichever is less. Those 50 or older get to contribute an additional $6,500 here.
As the employer, you can make an additional profit-sharing contribution of up to 25% of your compensation or net self-employment income, which is your net profit less half your self-employment tax and the plan contributions you made for yourself. The limit on compensation that can be used to factor your contribution is $285,000 in 2020.
Keep in mind that if you’re side-gigging, employee 401(k) limits apply by person, rather than by plan. That means if you’re also participating in a 401(k) at your day job, the limit applies to contributions across all plans, not each individual plan.
At your income level making a ROTH IRA contribution will not be allowed and any traditional IRA contribution will not be deductible ... it would add to the basis. When or if you ever convert the trad IRA to a ROTH the basis portion will not be taxed a second time ... you MUST keep a copy of the form 8606 with your IRA information so you or your heirs know of the basis in the account.
Thank you for the response. I did know most of those things about the solo 401K (from the links I mentioned).
I did not know that I would not qualify for a Traditional or Roth IRA at my income levels, or that the $57K was a contribution limit across all 401Ks...so thank you.
Some follow up questions:
1. I understand I can contribute up to a max of $57K (employee + employer portion) across my Solo (Individual) 401K AND Solo (Individual) Roth 401K. Assuming I can make a contribution of $40K into my 401K(s), can all of it go into the Roth 401K? or is the first $19,500 tax-deferred and have to go into the Solo (Individual) 401K?
2. To contribute to a Traditional IRA in 2020, your MAGI (modified adjusted gross income) needs to be less than $124,000. To contribute to a Roth IRA in 2020, your MAGI (modified adjusted gross income) needs to be less than $139,000
Are capital gains from investments counted in the MAGI (modified adjusted gross income) thresholds for the Traditional and Roth IRAs? If not, then my MAGI would be $100K (1099 income) + $60K (part-time W2 income). Assuming I made a contribution of 40K into my solo 401K, would my "tax basis" be reduced to $120K, so that I could contribute to the Traditional / Roth IRA?
3. If so, would I qualify for the Mega Backdoor Roth?
Thank you.
First you really should be talking to a local financial planner to get educated on all these retirement situations ... and where ever you have your solo 401K should also be able to explain your options.
Some follow up questions:
1. I understand I can contribute up to a max of $57K (employee + employer portion) across my Solo (Individual) 401K AND Solo (Individual) Roth 401K. Assuming I can make a contribution of $40K into my 401K(s), can all of it go into the Roth 401K? or is the first $19,500 tax-deferred and have to go into the Solo (Individual) 401K? The employEE portion can go in either account however the employER portion would go to the reg 401K only.
2. To contribute to a Traditional IRA in 2020, your MAGI (modified adjusted gross income) needs to be less than $124,000. To contribute to a Roth IRA in 2020, your MAGI (modified adjusted gross income) needs to be less than $139,000
Are capital gains from investments counted in the MAGI (modified adjusted gross income) thresholds for the Traditional and Roth IRAs? Yes they are if they are taxable on the return.
If not, then my MAGI would be $100K (1099 income) + $60K (part-time W2 income). Assuming I made a contribution of 40K into my solo 401K, would my "tax basis" be reduced to $120K, so that I could contribute to the Traditional / Roth IRA? You can always make a traditional IRA contribution ... it is the deductibility that is in question ... best advice I can give is to NOT make any contributions to any plan until you have your final numbers at the end of the year ... you have until the filing deadline to make them so don't be in a hurry where you are forced to remove excess contributions. See the info below:
The IRS uses your modified adjusted gross income (MAGI) when it comes to IRA limits. This number can be close (or identical) to your adjusted gross income (AGI). It takes your AGI and adds back certain deductions, including:
To calculate your modified adjusted gross income, find your AGI from your tax return. It's on line 8b of the newly redesigned Form 1040.9 Then, use Appendix B, Worksheet 1 from IRS Publication 590-A to modify your AGI for IRA purposes.
3. If so, would I qualify for the Mega Backdoor Roth? This is basically a conversion after making regular contributions ... of course a backdoor only really works if you have no basis in your 401K or traditional IRA ... please talk to someone locally for more personalized advice.
@Critter-3 thank you for clarifying...
I am a bit disappointed though, sounds like I can't take advantage of any further deductions :(
Is there a way to bring my AGI (or MAGI) down somehow, so that I qualify for the mega backdoor roth?
Also @dmertz if you have any suggestions I would love to hear them.
Thank you both.
You seem to be fixated on the "mega" backdoor roth ... it is only the conversion of the roth 401K contributions you can make during the year and the reason you cannot make the max is due to the business net income ... so make more income to max out the contribution so you can max out the conversion.
@Critter-3 I actually meant Contributing
That is what I am trying to accomplish (if that is legally possible)
The mega backdoor Roth allows you to put up to $37,500 in a Roth IRA or Roth 401(k) in 2020, on top of the regular contribution limits for those accounts. If you have a Roth 401(k) at work (and the plan allows for the mega option as described below), generally you can choose whether the final destination of your mega contributions is the Roth 401(k) or a Roth IRA. If your employer offers only a traditional 401(k), then your mega contributions would end up in a Roth IRA.
Here’s a quick summary of what you need to have in place for the ideal mega backdoor Roth strategy:
PLEASE TALK TO A PLAN ADMINISTRATOR AND GET EDUCATED ON WHAT IS ALLOWED.
Critter-3's information regarding the 401(k) contribution limits is somewhat incorrect. The $57,000 limit for 2020 is a per plan limit, not a per individual limit. It's the $19,500 per-individual limit that applies just to employee elective deferrals and Roth contributions to all plans in which the individual participates (except for 457(b) plans which have a separate $19,500 limit).
I'm going to directly address the original questions, so some of this might repeat what has already been said:
The sum of your employee elective deferrals and Roth contributions to the solo 401(k) (traditional or Roth) and the 401(k) at your W-2 employer is $19,500. This limit is per-individual. Assuming that you contribute nothing to a plan at your W-2 employer, you can split a total of $19,500 employee elective deferral and employer contributions any way you like between the traditional and Roth accounts in the solo 401(k).
The $57,000 limit is a per-plan limit for employee and employer contributions combined, however your self-employment income of $100,000 is far from the amount that would support that much of a contribution unless your solo 401(k) plan permits after-tax contributions that would take you beyond the $19,500 of elective deferrals and Roth contributions. Assuming exactly $100,000 of net profit from self-employment, your maximum employer contribution to the solo 401(k) would be $18,587 (all to the traditional account). If the plan permits after-tax contributions (and it might since you mentioned a MEGA backdoor Roth which involves after-tax contributions to a 401(k)), you could contribute the remainder of the $57,000 limit, $18,913 as an after-tax contribution to the traditional account in the solo 401(k).
You have enough compensation to also contribute the maximum $6,000 to a traditional IRA, but with your participation in the solo 401(k) that traditional IRA contribution would be nondeductible because your AGI will be above the limit for deductibility of the traditional IRA contribution. Your AGI will be too high to be able to contribute to a Roth IRA.
If your solo 401(k) plan does not permit after-tax contributions, the maximum that you will be able to contribute is $38,087 to the solo 401(k) ($19,500 employee and $18,587 employer) and $6,000 nondeductible to a traditional IRA for a total of $44,087. If your 401(k) plan does permit after tax contributions, add to that the $18,913 that I mentioned earlier. Depending on the plan rules, you might be able to make a rollover from the after-tax sub-account to a Roth IRA, but you likely will have to leave the other amounts and any earnings on those other amounts in the solo 401(k) until you reach age 59½.
Deferring income and getting money into Roth accounts are mutually exclusive. Even if you could make a distribution of the employer contributions before age 59½, whatever deduction you got for those contributions would be offset by the taxable amount of the rollover to a Roth IRA (or an In-Plan Roth Rollover, if the solo 401(k) plan permits).
You need to read the solo 401(k) plan agreement to find out what is and is not permitted by the plan.
Thanks @dmertz ... this is even confusing to me at times which is why my best advice is to talk to someone in the business locally.
@dmertz Thank you so much for taking the time to respond thoughtfully. Your reply has been a big help. I have some follow-up questions:
1. Re: Solo and Roth 401Ks:
The sum of your employee elective deferrals and Roth contributions to the solo 401(k) (traditional or Roth) and the 401(k) at your W-2 employer is $19,500. This limit is per-individual. Assuming that you contribute nothing to a plan at your W-2 employer, you can split a total of $19,500 employee elective deferral and employer contributions any way you like between the traditional and Roth accounts in the solo 401(k).
The $57,000 limit is a per-plan limit for employee and employer contributions combined, however your self-employment income of $100,000 is far from the amount that would support that much of a contribution unless your solo 401(k) plan permits after-tax contributions that would take you beyond the $19,500 of elective deferrals and Roth contributions.
I understand now that the employee (elective deferral) portion of the solo 401K cannot be more than $19,500....so I will contribute (at least) that portion for sure. No further questions here.
2. Re: Solo and Roth 401Ks, you said:
If your solo 401(k) plan does not permit after-tax contributions, the maximum that you will be able to contribute is $38,087 to the solo 401(k) ($19,500 employee and $18,587 employer) and $6,000 nondeductible to a traditional IRA for a total of $44,087. If your 401(k) plan does permit after tax contributions, add to that the $18,913 that I mentioned earlier. Depending on the plan rules, you might be able to make a rollover from the after-tax sub-account to a Roth IRA, but you likely will have to leave the other amounts and any earnings on those other amounts in the solo 401(k) until you reach age 59½.
How did you get a value of $18,587? I would really appreciate you sharing the formula you used (assuming my 100K of self-employment / 1099 income).
I looked up the "Contribution limits for self-employed individuals" section at the One-Participant 401(k) Plans article on the IRS website but wasn't able to figure it out. The website says:
You must make a special computation to figure the maximum amount of elective deferrals and nonelective contributions you can make for yourself. When figuring the contribution, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both:
one-half of your self-employment tax, and (not sure how this is calculated)
contributions for yourself. (not sure how this is calculated)
3.
The $57,000 limit for 2020 is a per plan limit, not a per individual limit.
I have opened both a solo 401K and a solo Roth 401K. Could I do this?
Can I still contribute an additional
$37,500 to my Roth 401K (I imagine the answer is no, but I'm hoping not)?
Case B: If my solo 401K permits after-tax contributions: Contribute $18,587 for the Employer nonelective contribution portion into my solo 401K, and
contribute the remainder of the $57,000 limit, $18,913 as an after-tax contribution to the traditional account in the solo 401(k).
Can I still contribute an additional
$37,500 to my Roth 401K (I imagine the answer is no, but I'm hoping not)?
4. Re: Traditional and Roth IRAs, you said:
You have enough compensation to also contribute the maximum $6,000 to a traditional IRA, but with your participation in the solo 401(k) that traditional IRA contribution would be nondeductible because your AGI will be above the limit for deductibility of the traditional IRA contribution. Your AGI will be too high to be able to contribute to a Roth IRA.
In my case, it appears that $6000 cannot be taken as a deduction. What is the benefit of making a nondeductible contribution to my traditional IRA? A few sub-questions here:
Thank you for helping me navigate these questions.
2. Actually, $18,587 is a bit off. I didn't take into account that your net earnings from self-employment plus your W-2 income would exceed the $137,700 Social Security wage base for 2020. With $100,000 of self-employment net profit and $60,000 of W-2 income, the deductible portion of self-employment taxes would be $6,157. That means that your maximum employer contribution would be 20% * ($100,000 - $6,157) = $18,769. See Chapter 5 of IRS Pub 560 for the more complete calculation that includes factors that would only affect individuals with lower net profit. This would make the maximum after-tax contribution be $57,000 - $19,500 - $18,769 = $18,731.
3. The Roth 401(k) must be a separate account within the same plan as the traditional 401(k) account. You can't have a 401(k) plan without a traditional account and your can't have a separate plan for the Roth 401(k) account.
4. Earnings grow tax-free only in Roth accounts. Any earnings on funds in the traditional accounts are tax-deferred, not tax-free. There are no restrictions on your ability to do a Roth conversion from a traditional IRA. There are certain restrictions on your ability to do rollovers from the 401(k) to a Roth IRA, but if your 401(k) plan permits In-plan Roth Rollovers, there are no statutory restrictions on your ability to do an In-plan Roth Rollover (although there might be plan restrictions such as the frequency of such rollovers).
I'm not sure what you mean by a Roth-IRA conversion ladder. Partial conversions are permitted, so you can convert as much or as little as you want in any given year, allowing you to manage your marginal tax rate. However, if you make a nondeductible traditional IRA contribution and you have no other funds in traditional IRAs, you would generally want to convert the entire traditional IRA balance immediately since the conversion would be essentially nontaxable (except for possibly a small amount of taxable earnings while in the traditional IRA if the conversion does't happen immediately).
@dmertz thank you for the clarification and detailed reply, it is appreciated.
Some more questions if you don't mind:
1. On the numbers:
Actually, $18,587 is a bit off. I didn't take into account that your net earnings from self-employment plus your W-2 income would exceed the $137,700 Social Security wage base for 2020. With $100,000 of self-employment net profit and $60,000 of W-2 income, the deductible portion of self-employment taxes would be $6,157. That means that your maximum employer contribution would be 20% * ($100,000 - $6,157) = $18,769. See Chapter 5 of IRS Pub 560 for the more complete calculation that includes factors that would only affect individuals with lower net profit. This would make the maximum after-tax contribution be $57,000 - $19,500 - $18,769 = $18,731.
May I ask how you got $6157 because I may have to do the math myself (my numbers that I shared with you are simplified).
Also where does the 20% number come from? I see 25% mentioned here: https://www.irs.gov/retirement-plans/one-participant-401k-plans but they also say "For self-employed individuals, see the discussion on "Contribution limits for self-employed individuals")
By the way, chapter 5 of the IRS Pub 560 is impossible to navigate and understand. https://www.irs.gov/publications/p560
Is there a way to officially calculate this from within TurboTax? I don't want to over-contribute and incur any penalties.
2. I called eTrade (that I am opening the solo and Roth 401Ks with) today and confirmed that the plan allows:
This means that I can't make any after-tax contributions, so I imagine I will only be able to contribute:
As far as reporting, eTrade:
3.
I'm not sure what you mean by a Roth-IRA conversion ladder. Partial conversions are permitted, so you can convert as much or as little as you want in any given year, allowing you to manage your marginal tax rate. However, if you make a nondeductible traditional IRA contribution and you have no other funds in traditional IRAs, you would generally want to convert the entire traditional IRA balance immediately since the conversion would be essentially nontaxable (except for possibly a small amount of taxable earnings while in the traditional IRA if the conversion does't happen immediately).
It seems like eTrade (my IRA custodian) does not allow after-tax contributions, so I may not be able to make a nondeductible traditional IRA contribution to my solo 401K.
Again, thank you.
1. Schedule SE Part I provides the calculation of self-employment taxes and the deductible portion of self-employment taxes. (The only calculation change from the 2019 Schedule SE Part I is to the Social Security wage base, $137,700 for 2020.)
Draft 2020 Schedule SE: https://www.irs.gov/pub/irs-dft/f1040sse--dft.pdf
Chapter 5 of IRS Pub provides a clear, step-by-step calculation and is the calculation that TurboTax implements on its Keogh, SEP and SIMPLE Contributions Worksheet. Even if you don't understand why each step is present, following the steps as indicated will lead to the correct result.
2. I'm not sure how a self-employed individual would ever not be in-service. eTrade is probably indicating that distributions are NOT permitted from the plan before age 59½. Certainly the law prohibits in-service distributions of employee elective deferrals and Roth contributions from a 401(k) prior to age 59½, but it's up to the plan to determine whether in-service distributions of other amounts are permitted before age 59½. An In-plan Roth Rollover (from the traditional 401(k) account to the Roth 401(k) account in the same plan) is permitted by law at any age but it's up to the plan to either allow or disallow IRRs.
A 401(k) is not an IRA. Form 5498 only applies to IRAs.
3. Contributions to a 401(k) are not IRA contributions. A nondeductible contribution to a traditional IRA would be made to a traditional IRA, not to a 401(k).
I have a separate but related question (please assume that we are still in 2020 when you’re answering this, my custodian, E*TRADE, allows for me to backdate contributions to dec 31st if you’re only a few minutes past the deadline)
I have both:
1. Solo Roth 401k
2. Solo 401k
I have self employment income of 100k for the 2020 tax year (and total income: self employment + w2 + capital gains of 250k for 2020)
Q1. Can I contribute 57k into the individual Roth 401k for 2020 tax year (for both employee and employee portion)? What would my contribution limits for the individual Roth 401k plan be?
Q2. If I don’t contribute to the individual Roth 401k:
Can I contribute 57k into the individual 401k for 2020 tax year (for both employee and employee portion)? What would my contribution limits for the individual 401k plan be?
Q3. Any thoughts on mixing and matching between the 2 accounts? What would you recommend?
many thanks..
I think Q1 and Q2 have been addressed previously above. To summarize:
A1. No. The limit for Roth 401(k) contributions for 2020 is $19,500, (plus $6,500 catch-up if you are over age 59½, but the catch-up doesn't apply to you since you are 41). The limit is on the combined total of employee elective deferrals and Roth contributions, so whatever amount of employee contributions you put into the Roth 401(k) reduces the amount that you can put into the traditional 401(k). This limit applies to all of your employee contributions similar plans in aggregate (but not to 457(b) plans which have a separate limit).
A2. See A1 for the employee contribution limit. Employer contributions can only be made to the traditional 401(k). With $100k of SE income and $60k of W-2 income, your maximum employer contribution would be $18,769.
You've said that your plan does not allow after-tax contributions to the traditional 401(k) account, so the amount in A1 and this A2 are the maximum permissible, $19,500 employee (traditional and Roth combined) plus $18,769 employer (traditional). (The amount of your W-2 income as a slight effect on determining the maximum employer contribution in this case.)
A3. Tax rates are lower now than they are expected to be in the future; the tax rates are schedule to revert to the pre-218 rates in 2026. That means that Roth contributions are likely to more beneficial now than later. Since you appear to want to put the maximal permissible into in your retirement plan, putting it all into the traditional account could result in large tax bills in the future to get that money back out due to the growth being tax deferred rather than tax free. Many people fail to plan how and when they will take money out of their retirement plans; it's just as important to get an early start on that planning (now) as it is for putting money into the plans.
Thanks for that insights - every point you made was very helpful. It's also useful to know that Employer contributions can only be made to the traditional 401(k).
One clarification (contrary to what I had said earlier): It seems my plan DOES allow after-tax contributions to the traditional 401(k) account.
Here are the specific clauses in my plan:
* Allows Elective Deferrals
* Allows In-Plan Roth Rollovers
* Allows Direct In-Plan Roth Rollover
* Allows an outstanding loan amount be included in a Direct In-Plan Roth Rollover
* Accepts Indirect In-Plan Roth Rollovers
Do these mean the plan allows after-tax contributions? (I would assume so, I selected "yes" for every box when setting up the plan). What would my contribution limits to the EMPLOYER portion of my Individual 401k and Individual Roth 401k be in this case? (I assume EMPLOYEE limits dont change and still can be a max combined of $19,500)
Can I do this?
step 1: EMPLOYEE contributions: Put $19,500 in my Individual Roth 401k (employee portion). Put $0 in my Individual 401k (employee portion) since I have used the $19,500 limit up for the Roth 401K above
step 2: EMPLOYER contributions: Contribute $57000-$19500 = $37,500 into my Individual 401k, given my income levels? Or would it be $18,769 as you mentioned, or would it be different since my plan seems to allow after-tax contributions?
step 3: Then, immediately roll the entire EMPLOYER contribution amount from my Individual 401k into my Individual Roth 401k? (no tax deferral benefit)
Some related q's:
1. Would a MEGA BACKDOOR Roth be necessary / useful to me, to maximize my contributions to a Roth?
2. On top of all this, can I still do a regular backdoor Roth contribution of $6000 (contribute to my traditional IRA and immediately roll it over into my Roth IRA)?
3. Lastly, can I open a solo / individual 457(b) plan on top of what I am doing above to increase my retirement contributions / deferrals?
The specific clauses you listed for your plan have nothing to do with permitting after-tax contributions to the traditional account in the 401(k). It's likely that your plan does not, leaving you with no way to do a Mega Backdoor Roth.
457(b) plans can only be established by government organizations (qualified 457(b) plans) and tax-exempt entities such as charities (nonqualified 457(b) plans).
@dmertz thanks and I see. I will find out (by calling Etrade) specifically on whether they allow for after-tax contributions. In the remote case that they do, what would my EMPLOYER contribution limit become? I assume the mega backdoor Roth becomes possible in that circumstance.
What formula was used to calculate $18,769?
On top of all this, can I still do a regular backdoor Roth contribution of $6000 (contribute to my traditional IRA and immediately roll it over into my Roth IRA)?
Thanks!
You appear to have sufficient compensation to be able to make a nondeductible contribution to a traditional IRA. There is no limit on how much you are permitted to convert to Roth and if you have no other money in traditional IRAs, your conversion will be tax free.
The calculation of the maximum employer contribution is done on the Deduction Worksheet for Self-Employed in IRS Pub 560. TurboTax implements that worksheet as the Keogh, SEP and SIMPLE Contribution Worksheet.
@dmertz thank you. To make sure I am understanding correctly (this will help me this year and future tax years, so I appreciate your answers)
I have these accounts:
Roth IRA: $130K
Traditional IRA: $330K
(new) Individual 401K: $0
(new) Individual Roth 401K: $0
Can I do this for 2020 tax year?
step 1: EMPLOYEE contributions: Put $19,500 in my Individual Roth 401k (employee portion). Put $0 in my Individual 401k (employee portion) since I have used the $19,500 limit up for the Roth 401K above
step 2: EMPLOYER contributions: Contribute $18,769 into my Individual 401k as you mentioned, given my income levels (this is assuming my plan does not allow after-tax contributions) Would this be deductibe or a non-deductible employer contribution? I am confused about this.
step 3: Then, immediately roll or transfer the entire $18,769 contribution amount from my Individual 401k into my Individual Roth 401k? (no tax deferral benefit). Can I do this, or would the money have to stay in my Individual 401k? If I am not permitted to do this, then it does not make sense to contribute the $18,769 at all (since deferring taxes wont have any advantages, as you said previously).
Appreciate you clarifying!