Real mega Roth conversion (not backdoor Roth) 2010/2011

[qwerty89]

@aneftp , what do you do about
1. FICA taxes on the 1099.
2. malpractice insurance on the 1099 part of your work

How much are those

FYI since you are in CA you also benefit from being able to bypass SALT limit of 10k as an s-corp. You pay a 9.3% elective payment to CA which then gives you a dollar for dollar reimbursement on your state income tax. Because this payment is made by the corporation it is a business expense and can be deducted on your federal taxes. Also as s-corp most accountants say its just fine to pay yourself 50% salary and take the other 50% as distribution. You do not pay FICA on the distribution. This helps decrease medicare taxes (you probably already maxed out SS taxes). Medicare also has the additional tax on income over 200k which started under Obamacare so you can decrease that as well.

Biggest reason to be 1099 is combining a solo 401k with a cash balance plan (and using a mega backdoor roth as well since you can only do 6% 401k match when you combined the two) + SALT bypass + other business related deductions to get your taxable income below the threshold for the 199A Qualified Business Income deduction which is 20%. I think its 380k~ for married filing jointly. Should be ~70k+ deduction. Marginal tax rate (NOT EFFECTIVE) of ~41% at that range (state + fed) means 28k~ back in your pocket for free. Staying below that 380k is key since that is also around the jump from 24% to 32% federal tax bracket. Obviously don't make less just to avoid taxes but if would rather work less then that IMO is the sweet spot as far as actual take home pay (including retirement savings) to work ratio.

SALT limits for W2 earners and the QBI both started in 2017 with Trump. Both made it worse to be W2.

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[onconc]

FYI since you are in CA you also benefit from being able to bypass SALT limit of 10k as an s-corp. You pay a 9.3% elective payment to CA which then gives you a dollar for dollar reimbursement on your state income tax. Because this payment is made by the corporation it is a business expense and can be deducted on your federal taxes. Also as s-corp most accountants say its just fine to pay yourself 50% salary and take the other 50% as distribution. You do not pay FICA on the distribution. This helps decrease medicare taxes (you probably already maxed out SS taxes). Medicare also has the additional tax on income over 200k which started under Obamacare so you can decrease that as well.

Biggest reason to be 1099 is combining a solo 401k with a cash balance plan (and using a mega backdoor roth as well since you can only do 6% 401k match when you combined the two) + SALT bypass + other business related deductions to get your taxable income below the threshold for the 199A Qualified Business Income deduction which is 20%. I think its 380k~ for married filing jointly. Should be ~70k+ deduction. Marginal tax rate (NOT EFFECTIVE) of ~41% at that range (state + fed) means 28k~ back in your pocket for free. Staying below that 380k is key since that is also around the jump from 24% to 32% federal tax bracket. Obviously don't make less just to avoid taxes but if would rather work less then that IMO is the sweet spot as far as actual take home pay (including retirement savings) to work ratio.

SALT limits for W2 earners and the QBI both started in 2017 with Trump. Both made it worse to be W2.

Thanks. But in our case, spouse also works (non physician) and has significant income ; and has no way to convert to a 1099. Spouse is a W2 employee of regular corporation.
Additionally, combined household income is well above 1M. I could ask my hospital to split my compensation between W2 & 1099 (not sure they will agree). But even if they agreed to reduce W2 to 380k, it would be much higher than a 50% split (between W2 and 1099) ; meaning 1099 will be like 65% of my compensation

Any suggestions for our scenario ?

 

[triggermaster]

Thanks. But in our case, spouse also works (non physician) and has significant income ; and has no way to convert to a 1099. Spouse is a W2 employee of regular corporation.
Additionally, combined household income is well above 1M. I could ask my hospital to split my compensation between W2 & 1099 (not sure they will agree). But even if they agreed to reduce W2 to 380k, it would be much higher than a 50% split (between W2 and 1099) ; meaning 1099 will be like 65% of my compensation

Any suggestions for our scenario ?

They can’t pay you 1099 if you are a regular employee. They can’t split between W-2 and 1099 either.

 

[aneftp]

Thanks. But in our case, spouse also works (non physician) and has significant income ; and has no way to convert to a 1099. Spouse is a W2 employee of regular corporation.
Additionally, combined household income is well above 1M. I could ask my hospital to split my compensation between W2 & 1099 (not sure they will agree). But even if they agreed to reduce W2 to 380k, it would be much higher than a 50% split (between W2 and 1099) ; meaning 1099 will be like 65% of my compensation

Any suggestions for our scenario ?

You are kinda of stuck. Having two w2 employees in the household doesn't optimized tax savings especially since both are high earning w2.

This locums doc i met from the northeast left his w2 job because his wife (who is also non medical and has nice paying 400K w2 finance gig with a big company plus bonus. He left his w2 anesthesia job to do pure loucms. He didn't need healthcare benefits since it came from wife's company.

But the key is his kids were 17/19/20. So he's free to travel to do 1099 work.

So depending on your kids ages, it may not be practical to do pure locums work and be away from the family.

It would be hard for me to take a pure w2 hospital job outside of federal/state that offered something (pension/generous retirement plans pretax) or an AMC with 20 weeks off to minimize my taxes.

I know when my friend's anesthesia california practice got taken over by the hospital. The former partners were adamant about not being w2 hospital employees. So they negotiated a 1099 contract paid directly by the hospital to mantain their tax savings. So the hospital bills for them now. They actually make a little more than they did as private practice but with many more tax advantage savings.

So to answer your question, you are stuck if you want to stay a w2 hospital employee. If you love the job or it fits your lifestyle. Stick with it.

 

[triggermaster]

My effective tax rate is 21% as w2 the past 6 years pretty consistent

Now plug that in

I mention back door Roth because people consider that post tax money. 401k/403b Roth option is equally considered post tax money as well. That’s why i mentioned it

Now I routinely put away 50-70k pretax money in any combination of my previous or current solo 401k or sep Ira accounts in addition to Roth 403b post tax account for a total of close to around 100k each year. I am not exclusively post tax Roth. As well as state or county 457b pre tax

I also have maxed out 529 account for the kids and now have 529 accounts for future grand kids who don’t even exists. I had 529 accounts before I was even married.

I am not a novice.

My points of discussion is it’s so contradictory of people to keep pushing for post tax backdoor Roth while bashing post tax Roth 403b option as well. I’m doing a combination of everything

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