Voluntary after-tax contributions Schedule C

[mefrancis1729]

I have an employer who has a 401(k)PS and DB plan. There is only one person in the plans- the owner. They are currently maxing out the 401(k) deferrals, doing 6% of compensation in profit sharing (combined deductibility limit) , and 5% of average annual comp per years of service in the DB. The owner takes Schedule C compensation.

The owner wants to make voluntary after tax contributions to the 401(k) PS plan up to the max limit. I believe they can make these- http://www.nytimes.com/2015/09/23/your-money/401ks-and-similar-plans/irs-ruling-makes-after-tax-contributions-more-attractive.html?_r=0

The issue is whether these after tax voluntary contributions count toward the PS deductibility limit or not. I would assume no, since any employee in a PS plan can do this with their own contributions.

Also do the voluntary after tax contributions have to come out of her Schedule C compensation like the DB and PS costs do? Or are they counted like deferrals and not taken out?

[ETA Consulting LLC]

It's perfectly allowed since these after-tax contributions would be limited by only 415 and ACP. Since he's the only person, then 415 it is.

So, he can contribute after-tax contributions up to the maximum limit and immediately rollover into a Roth IRA for inflated funded of the Roth.

Good Luck!

[AndyH]

But then he may incur tax issues if he has pre-tax IRAs. Instead he can do an in-plan Roth conversion if the plan document permits and avoid those tax consequences.

[chc93]

I recently read somewhere (can't recall at all, and don't thin it was specific to this situation) that the IRS may view a series of transactions as a single "effective" transaction, such that a $53,000 after-tax contribution to the plan, then an in-service distribution to a ROTH IRA may be viewed as a single ROTH IRA contribution, which is limited to $5,500. Not sure how an in-plan ROTH conversion will be viewed by the IRS.

[AndyH]

I can tell you that many large companies allow this in their plans. I happen to be in one that does, and before that I was in another one that did. Could there be a different interpretation for a solo plan?