Backdoor Roth (newbie who needs to max one out ASAP)

[Quaker]

Background: I am a newbie that just found out about the concept of backdoor Roth from a friend. I’m trying to get as much money as possible into a self-directed Roth 401k as soon as possible for an investment opportunity that closes very soon. My husband and I have no traditional IRAs. I run my own LLC and currently have no retirement plan set up through it and my husband can be considered an employee of the company as he has provided services to it (I am the only other employee). My husband has a plain-vanilla 401k through his employer that he maxed out in 2012 (the employer does not match at all).

What are our options to maximize the amount we can each get into a self-directed IRA in the next two weeks and what amounts could each of us contribute? Should I set up a after tax 401k through my work and have us both contribute (or does my husbands one 401k forgo him from being able to participate in another in 2013, even if he provides no contributions to his existing 401k). Or are we simply limited to 10K each (5K for each of 2012 and 2013) to add to a traditional IRA and then roll them both over to self directed Roth IRAs? Do you have any recommendations of which companies you have used for each step of the process you recommend? Thank you for your help and I wish I had discovered this community earlier!

 

[bUU]

Backdoor Roth ... My husband and I have no traditional IRAs. ... My husband has a plain-vanilla 401k through his employer that he maxed out in 2012 ... What are our options to maximize the amount we can each get into a self-directed IRA in the next two weeks and what amounts could each of us contribute?

I assume that you AGI is over $173k (because otherwise you'd be able to just contribute that money directly into a Roth IRA).

For Tax Year 2012, you can each contribute $5000 to traditional IRAs after-tax, up to the amount of earned income you each had in last year. (More if you're over 50.) Then you can initiate a Roth conversion on that traditional IRA. (Be aware of the Step Transaction Doctrine - it's probably not a consideration, but I cannot with honor explain Backdoor Roth conversions without mentioning the Step Transaction Doctrine.)

You can even contribute another $5000 for Tax Year 2013, at the same time (though perhaps in another tIRA - some folks advocate keeping each year's contributions separate, even making sure they end up in different Roth IRAs - others can probably explain why to do that better than I - I personally don't like the idea because it limits investment choices). Then you can convert both at the same time.

Should I set up a after tax 401k through my work and have us both contribute (or does my husbands one 401k forgo him from being able to participate in another in 2013, even if he provides no contributions to his existing 401k).

First, I'm assuming that you're aiming for Roth, here, so you'd need to set up a Roth 401k through your work, not just a traditional 401k after-tax. They are not the same. If you can do that, that would allow you to contribute another $17500 in 2013 over and above the $5000 that you could do as a Backdoor Roth, but I don't believe there is any way to retroactively contribute to a 401k for a previous tax year, like you can with IRAs.

But the main point here is that there is no reason to confuse 401k with IRA. While there are ways to go from one to the other, for matters of annual contributions they are handled separately, and, as far as I know, for Roth conversions as well.

Do you have any recommendations of which companies you have used for each step of the process you recommend?

As far as I know, no specific company is universally considered better than others for any specific steps, so this reduces down to a rather general question: You're basically asking, "Which brokerage do you like?" I like Fidelity.

 

[Animorph]

It sounds like you can set up an Individual Roth 401k (also known as a Solo Roth 401k) for yourself and probably your husband for your LLC. You can place about $50k for each of you, assuming enough earnings already in this year. Given the date, you're probably out of luck applying this to 2012, though contributions that were "planned" in 2012 can be made in 2013, I think, maybe. You'd be stretching the rules with that I think. And I think the account had to exist in 2012.

E*Trade can set up the Roth 401k fairly easily. Fidelity didn't have the Roth when I looked.

 

[Quaker]

Can you use a self directed roth 401K to invest in any investment you want? For example an offshore investment in a limited partnership?

 

[ronocnikral]

Can you use a self directed roth 401K to invest in any investment you want? For example an offshore investment in a limited partnership?

MY suggestion would be to get professional help with this.

The answer is yes, you can invest in just about anything you want in your solo 401k, collectable art, coins etc aside.

Your professional should check to make sure won't be making any prohibited transactions/actions through this investing.

Also, your Husband will be limited to $17,500 (+ catch up contribution if applicable) in both 401k's combined.

You're being vague, with the complex nature of what I understand you are trying to do, I'd rather take info from a pro rather than people on the internet.

My 2 cents.