Solo 401K post-tax account questions (plus FAFSA)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
casualflower
Posts: 382
Joined: Thu Jul 16, 2015 9:36 am

Solo 401K post-tax account questions (plus FAFSA)

Post by casualflower »

The standard Solo 401k structure, intended to facilitate the mega back door Roth is to have 3 accounts: pre-tax, Roth, and post-tax.

I've got two questions on the post-tax account.

One, if you're going to do a conversion, is there a point in maxing out the Roth, and putting the balance into the post-tax account for conversion rather than just putting that combined amount into the post-tax account and doing the conversion? Why write two checks if you can write one?

Two, is there any advantage to putting money into a post-tax account if you're not going to convert? Let's say you're simply choosing to not convert (as discussions of upcoming legislation are not permitted). One that comes to mind is the FAFSA ignores retirement accounts. Does that include post-tax accounts within a 401k? Are there other wealth tests that ignore retirement accounts?



Thanks!
DavidRoseMountain
Posts: 192
Joined: Sun Nov 30, 2014 2:27 pm

Re: Solo 401K post-tax account questions (plus FAFSA)

Post by DavidRoseMountain »

I'm not sure I understand the question about whether there is a point in maxing out the Roth.

I know that there is an annual addition limit that maximizes how much can be put into the solo 401k in which all the various contributions, pre-tax and post-tax can't exceed a specified limit.

I think it's a good idea to do the amount for the Roth that you can figure out now for 2021 tax year. The reason to do it now is because there may be changes that prohibit a post-tax to Roth conversion in the 2022 calendar year. I believe there's a post on the Finance Buff blog about this.
Post Reply