I started my own business a couple of years ago. Unfortunately, it's gone a little too well. No longer qualify to contribute to a regular Roth. Looks like I need to start a company retirement plan. I am having some difficulty finding info. I can only find information on signing up for your company's retirement plan.

I would prefer a 401 to have the access to Roth 401. 1) How do I actually get this started? 2) Is 401k the best option? Currently I am the only full time employee, but I don't see that lasting much longer.

Thank in advance.

You can still do a Roth, just backdoor

hedge said:

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You can still do a Roth, just backdoor

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If he has no money in any regular IRA's.

That's not true

I know. A terrible problem to have. We have been blessed

I thought to do a back door Roth you had to put money into a regular IRA first. I have a couple of SIMPLE IRAs from previous jobs but I don't think I can contribute to those because I don't work there any more.

I also just need to get a system so u can offer retirement benefits to future employees. I would rather do it once then do one thing as an individual just to have to change in a couple years when I start adding other full time folks

All you have to do is open a regular Ira, contribute to it (don't deduct from income) and then transfer it to a roth

Open a separate IRA

hedge said:

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That's not true

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Here you go.

The Pro-Rata Rule is used to provide a ratio that determines what amount of the conversion is taxable. This ratio is calculated based on the percentage of non-deductible after-tax dollars in Traditional IRAs, 401(k)s, SEP IRAs, and SIMPLE IRAs.

It is important to note that the pro-rata rule treats all IRAs as one IRA. This is referred to as the Aggregation Rule. Opening a new IRA account and making a nondeductible contribution does not avoid this rule.

I mean you can do a backdoor roth if you have deferred money in a IRA, but you will owe taxes on the Roth conversion.

Op might be eligible for a solo 401k plan

AggieT said:

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Not this **** again.

Yes, he can do it even if he has existing IRA's, but the pro rata rule applies to any conversion.

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well not like that's a minor detail, pretty much most 'existing IRA's' would be old rollover 401K's of significant size to cause backdoor to largely lose appeal

https://www.employeefiduciary.com/

Exactly.

Talk to your financial advisor. If they don't do plans, look for one with the CPFA designation. They can advise you on plan selection and plan design, then eventually help with employee education.

reineraggie09 said:

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I know. A terrible problem to have. We have been blessed

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Congratulations!
Just curious, what do you do in your business?

Veterinarian, started my own solo practice.

Check out the SIMPLE IRA. Very easy and inexpensive.

My thought as well SIMPLE IRA now should have ROTH option with Secure Act 2.0 and be great for your business currently.

OP....
Right now you're a (I'm guessing here) an one person shop or a family only shop. I'm assuming since you said you might soon hire your first employee. I'm guessing that means that right now you're just doing payroll yourself?

One thing to look at as you're getting ready to grow might be outsourcing that and seeing about a payroll outfit that can handle not only payroll but 401(k) and insurance all in one package.

I'm not much help here, but everyone else on this thread seems to be suggesting things that aren't what you asked about.

Guideline is the answer

P.H. Dexippus said:

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https://www.employeefiduciary.com/

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+1 on Employee Fiduciary.

We recently got setup with them based on the recommendations of our financial planner, for the same reasons of OP.

We've found EF to be cost-effective and helpful in navigating the incredibly complicated process.

reineraggie09 said:

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I started my own business a couple of years ago. Unfortunately, it's gone a little too well. No longer qualify to contribute to a regular Roth. Looks like I need to start a company retirement plan. I am having some difficulty finding info. I can only find information on signing up for your company's retirement plan.

I would prefer a 401 to have the access to Roth 401. 1) How do I actually get this started? 2) Is 401k the best option? Currently I am the only full time employee, but I don't see that lasting much longer.

Thank in advance.

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With no full-time W2 employees, a Solo-401(k) is a very low cost and easy solution to implement. Any of the big investment companies like Schwab, Fidelity, or Vanguard have these plans available. As long as you are the only participant, none of annual testing that burdens multi-participant plans is required. There isn't any special tax reporting required until the plan exceeds $250k.For 2024, you can defer $23,000 of salary (plus age50+ catchup of $7500). In addition your business can contribute up to 25% of your compensation (after SS and Medicare taxes). The maximum amount possible is $69,000 ($76,500 for 50+) in 2024.

You can exclude new employees that are < 21 yrs old and those with < 1 year of service. Once you have to add a non-spouse participant to the plan, the administration get more complicated and expensive. At a minimum, it sounds like you possibly could set one up for 2024 to help with this year's taxes, and probably next year even if you add an employee. You can always move to another provider if/when you need to. Others have mentioned good choices like Guideline, if/when that time comes.

A SEP IRA allows the business to contribute up to 25% of compensation (with no salary deferral), so it probably makes sense to compare and contrast the two to see which serves your needs best.