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Individual 401k
Old 03-05-2015, 07:12 PM   #1
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Individual 401k

I'm looking at opening up an individual 401k and started doing some research on the Vangard website. I ran across this section and needed clarification:

Employer contributions Maximum employer contribution per eligible employee is $52,000 for the 2014 tax year and $53,000 for the 2015 tax year. Maximum tax deductible employer contribution is 25% of compensation. Deductible as a business expense and not required every year.

So does this mean no tax is paid on the employer contributions (by the employee) even if you set it up as a ROTH? If it is then to me it looks like you never pay taxes on the employer contribution. Is that right or am I missing something?

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Old 03-05-2015, 07:27 PM   #2
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If you set it up as a Roth, you will have 2 pools of money: 1) Employee Roth contributions and earnings. Those are tax free as long as you withdraw at the proper age. 2) Employer contributions and earnings. Fully taxable.

Just my reading.

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Old 03-06-2015, 12:10 AM   #3
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The bolded statement, is how it works for a regular individual 401K plan.
As for a individual Roth-401K plan, you raise an interesting question, how does it work?
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Old 03-06-2015, 06:08 PM   #4
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Normally an employer sticks their contribution in a traditional 401k only, for the tax break. I had both types as individual 401k's, but didn't use the Roth enough to find those limits.
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