Investor · Richmond, VA · Member since 2013 · 347 posts · 191 votes
I have a SD 401k which has an LLC as the plan sponsor. I take distributions from the LLC as the single member. I want to start putting 100% of my distribution into the 401k as a ROTH contribution. If my normal distribution would be, for example, $1,000 can I put the full $1,000 into the 401k or do I need to pay estimated federal income tax out of that $1,000 and only contribute the difference? I think I can pay the self-employment taxes separately since that's not normally withheld by the LLC anyway.
I have a SD 401k which has an LLC as the plan sponsor. I take distributions from the LLC as the single member. I want to start putting 100% of my distribution into the 401k as a ROTH contribution. If my normal distribution would be, for example, $1,000 can I put the full $1,000 into the 401k or do I need to pay estimated federal income tax out of that $1,000 and only contribute the difference? I think I can pay the self-employment taxes separately since that's not normally withheld by the LLC anyway.
Please note that if your goal is Roth contributions, you can contribute as much as $57K (or even $63.5k if you are 50 or older) if you have a Solo 401k plan which supports Mega Backdoor Roth contributions.
@Shera Gregory Please consult with your CPA on a matter of this nature to ensure you get things right for your specific case.
A Solo 401(k) allows for up to $19,500 as a direct employee contribution and that may be done on a Roth basis. When you file your schedule C, the math is Income, minus expenses, minus self-employment taxes = compensation to you. Your employee contribution to the plan comes from the final compensation number, so after payroll taxes.
You should also evaluate employer profit sharing contributions which come after the employer's half of payroll taxes but before being deemed compensation to you so therefore ahead of your half of the payroll taxes. This type of contribution can be up to 20% of your net business income and must be made on a tax-deferred basis. You can as the employee choose to convert that amount to Roth status after the contribution has been made.
@Shera Gregory, yes the math on employer profits sharing is different in a corporation (25% of W-2 wages), but the information I provided applies to a pass through such as your LLC.
I have a SD 401k which has an LLC as the plan sponsor. I take distributions from the LLC as the single member. I want to start putting 100% of my distribution into the 401k as a ROTH contribution. If my normal distribution would be, for example, $1,000 can I put the full $1,000 into the 401k or do I need to pay estimated federal income tax out of that $1,000 and only contribute the difference? I think I can pay the self-employment taxes separately since that's not normally withheld by the LLC anyway.
Please note that if your goal is Roth contributions, you can contribute as much as $57K (or even $63.5k if you are 50 or older) if you have a Solo 401k plan which supports Mega Backdoor Roth contributions.