After tax 401k contribution more than paycheck

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fluffycloud
Posts: 8
Joined: Thu Feb 21, 2019 2:49 pm

After tax 401k contribution more than paycheck

Post by fluffycloud »

Is there any way to make an after tax 401k contribution that is more than my paycheck?

To give some context, I am self-employed as of this year but have not yet established a 401k for my company. I would like to put the maximum amount into the 401k this year. One way to do that would be to set it up and do normal paycheck contributions up to $19.5k, then top it off with another $38,500 of employer contribution. I don't want to do that because then I won't get the qualified business income (QBI) deduction for that $38,500. I'd prefer to contribute the final $38,500 as an after tax contribution and do a mega-backdoor Roth (I understand that I'd have to set up a 401k that would allow this). The problem with that approach is that I don't pay myself enough in salary to put $58,000 from my paychecks into the 401k for the rest of the year. I don't want to pay myself more because that would also reduce the QBI deduction.

So, to repeat my initial question, is there any way to make a 401k contribution that is more than my paycheck? Can I just write a check to the 401k for an after tax contribution? I found one random website (https://www.approachfp.com/writing-a-ch ... your-401k/) that said I possibly could, but it didn't provide any details. As I haven't set up the 401k, I can be flexible with who I go with. I'm considering mysolo401k.net, discountsolo401k.com, or solo401k.com, if any of them would allow something like this. Any alternative options to what I've suggested are also welcome. Thanks!
nolesrule
Posts: 2631
Joined: Thu Feb 26, 2015 9:59 am

Re: After tax 401k contribution more than paycheck

Post by nolesrule »

Sounds like you are an S-Corp? Solo 401k employee contributions, including after-tax must come from employee compensation.

Why did you go for S-Corp over sole proprietor? And do you have any employees?
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: After tax 401k contribution more than paycheck

Post by KlangFool »

OP,

You may need to find a 401K provider that offer after-tax 401K contribution too. Not all providers offer that.

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retiredjg
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Re: After tax 401k contribution more than paycheck

Post by retiredjg »

fluffycloud wrote: Wed Sep 22, 2021 8:26 am I'm considering mysolo401k.net, discountsolo401k.com, or solo401k.com, if any of them would allow something like this.
Unless something has changed, these providers only provide plan documents and annual plan updates. They do not provide plan administration. So you either have to hire a third party administrator at an extra cost or do it yourself which could be a poor choice if you know nothing about 401k plan administration.

Employee Fiduciary does provide what you are looking for along with plan administration. E-trade is getting into this space, but information is limited as they have just started it.
Topic Author
fluffycloud
Posts: 8
Joined: Thu Feb 21, 2019 2:49 pm

Re: After tax 401k contribution more than paycheck

Post by fluffycloud »

Yes, the company is an S-corp. Maybe I should have gone with an LLC, but I wanted to avoid sole proprietorship for liability reasons. There are no employees (besides myself).

I understand that the contributions must come from compensation, but can I put compensation I have already received back into the 401k as an after tax contribution? I have seen some sources claim that you definitely can't do that for deferred/before tax 401k contributions, but nothing that specifically addressed the possibility for an after tax contribution. The after tax contribution isn't really "deferred," so it seems reasonable that a different rule could apply.

KlangFool, I understand I need to find a 401k provider that will allow after tax contributions. The ones I'm looking at have that option.

retiredjg, I am aware that I would need to figure out 401k plan administration--that's one of the things I need to figure out before going much further. I'd be happy to try to look into this myself, but I haven't seen anything comprehensive on detailing what needs to be done. The closest I've found is people broadly describing the risks in other threads like viewtopic.php?f=2&t=292833. Right now, I'm in the position where I don't really know what I don't know, and I don't know how to learn what I need to know.
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retiredjg
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Re: After tax 401k contribution more than paycheck

Post by retiredjg »

fluffycloud wrote: Wed Sep 22, 2021 9:41 am Right now, I'm in the position where I don't really know what I don't know, and I don't know how to learn what I need to know.
I would consider this a good reason to hire a third party administrator, at least for a few years until you can see for yourself what needs to be done.

There are people here who do administer their own plans and seem satisfied with it. I suspect we would not hear too much from people who have spent endless hours working out details and fixing the problems.

If you have the spare time for this and an interest in learning all about it, maybe it will work out for you too. Without the spare time or interest, I think it is worth paying someone to take that headache away.
Topic Author
fluffycloud
Posts: 8
Joined: Thu Feb 21, 2019 2:49 pm

Re: After tax 401k contribution more than paycheck

Post by fluffycloud »

retiredjg wrote: Wed Sep 22, 2021 9:49 am If you have the spare time for this and an interest in learning all about it, maybe it will work out for you too. Without the spare time or interest, I think it is worth paying someone to take that headache away.
Yes, that's what I'm leaning towards. I'm thinking of getting MySolo401k.net and having Guideline or Employee Fiduciary act as TPA for a year or two.
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