Most people have heard of Roth IRAs. Those that qualify typically contribute and those that do not qualify can sometimes find a way to do so, as Zach Gering indicates here. In either case, you can do MORE.

Take a step back and understand plan types and limits

Depending on your current occupational status and business structure, you may or may not be able to open any of the accounts noted above. For starters, any individual can open an IRA (with certain age/income requirements). All of the other plans must be company sponsored. An optimal retirement plan design permits annual savings of $56,000/year if you are under the age of 50 or $62,000/year if you are age 50 and above. What’s more, it can all be Roth!

How is this possible?

Formula = 401(k) + Profit Sharing + After Tax Contribution + Roth Conversion

An individual can contribute up to $19,000/year (under 50 years old) or $25,000/year (50+ years old) to a Traditional, or Roth 401(k). You can fund the remaining balance of $37,000 through any of the following ways:

  • EMPLOYER can contribute via matching or profit sharing
  • EMPLOYEE can contribute with after-tax dollars

You can then convert any traditional dollars (past or present) to Roth. It is that simple.

Why doesn’t everybody do this?

Frankly, most people do not know how to do this. It also depends on how your business and income is structured (C-Corp versus Sole Proprietor or 1099 versus W2 for example), among other things. That said, if you are an employee, your company must draft the retirement plan document to allow for these features. The Department of Labor also deploys plan discrimination testing which can alter the amount highly compensated/key employees can contribute. If you are a business owner and you are not doing this, you may be missing out.

But wait, there’s more – the optimal plan design

You can also add a cash balance plan on top. A cash balance plan is a pension plan in which an employer credits a participant’s account with a set percentage of his or her yearly compensation plus interest. There is a complex calculation that takes your age and income into consideration, among other things, to determine your maximum annual contribution.

An example of an optimal plan design:

Step up your game

Modern problems require modern solutions. There are many planning strategies at your disposal if you get creative. It is definitely worth a conversation with your financial advisor to go over the options.


Wealthspire Advisors is the common brand and trade name used by Sontag Advisory LLC and Wealthspire Advisors, LP, separate registered investment advisers and subsidiary companies of NFP Corp.
Certified Financial Planner Board of Standards, Inc. owns the certification marks CFP®, Certified Financial Planner™ and federally registered CFP (with flame design) in the U.S., which it awards to individuals who successfully complete CFP Board’s initial and ongoing certification requirements.
This information should not be construed as a recommendation, offer to sell, or solicitation of an offer to buy a particular security or investment strategy. The commentary provided is for informational purposes only and should not be relied upon for accounting, legal, or tax advice. While the information is deemed reliable, Wealthspire Advisors, LP cannot guarantee its accuracy, completeness, or suitability for any purpose, and makes no warranties with regard to the results to be obtained from its use. © 2019 Wealthspire Advisors

Kevin Couper, CFP®

Kevin is an advisor based in the Los Angeles, CA area.