One thing that hasn't been mentioned yet is the importance of documenting your income timeline for the IRS. Since your eligibility changed mid-year due to landing new clients, keep records of when those contracts were signed and when payments actually started. This documentation can be helpful if the IRS ever questions the timing of your contributions versus your income changes. Also, given your dramatic income increase, you might want to consider maxing out other tax-advantaged accounts first before worrying about the Roth situation. With $40k monthly income, you could potentially max out a Solo 401(k) ($69,000 for 2024), which would significantly reduce your MAGI and might actually bring you back within Roth contribution limits. The math works like this: $480k gross income minus Solo 401(k) contribution minus business expenses minus self-employment tax adjustments could potentially get your MAGI low enough that you don't need to recharacterize at all. It's worth running those numbers before you make any moves with your existing Roth contributions. Sometimes the solution isn't fixing the "problem" but rather changing other variables in the equation!

This is such valuable advice about approaching it from the other direction! I was so focused on "fixing" my Roth contribution problem that I didn't think about using other retirement vehicles to reduce my MAGI back down to eligible levels. The Solo 401(k) strategy is really compelling - if I could contribute the full $69,000 (or potentially more with the employee + employer contribution structure), that would knock my MAGI down significantly. Plus, as others mentioned, it wouldn't interfere with future backdoor Roth strategies like a SEP-IRA would. Your point about documentation is also spot-on. I should definitely keep records of when my new client contracts were signed versus when the higher payments actually start hitting my accounts. The IRS loves clear timelines when income changes dramatically within a tax year. I'm going to run the numbers on maxing out a Solo 401(k) first before making any decisions about recharacterizing my existing Roth contributions. If the math works out and brings me back under the limits, that would be the ideal solution - keeping my Roth contributions intact while also maximizing other tax-advantaged savings. Thanks for the fresh perspective on solving this puzzle!

I'm wondering whether the company match counts towards the annual 401k contribution limit? Like if the limit is $22,500 for 2025, does the employer match count against that or can I still contribute the full amount myself?

This is a great question that trips up a lot of people! The "401k co match" line on your paycheck is definitely showing you the employer contribution - it's money your company is adding to your retirement account, not taking from your pay. One thing I'd add to the other helpful responses: keep an eye on your contribution percentage to make sure you're getting the maximum match available. Many employers have a "vesting schedule" too, which means you might not be 100% entitled to that match money until you've worked there for a certain period (usually 2-6 years). The vesting info should be in your plan documents. Also, that $95 match suggests you're probably contributing a decent amount yourself - just make sure you understand whether your company matches dollar-for-dollar up to a certain percentage, or if they have a different formula. It's worth reviewing your benefits package annually to make sure you're maximizing this free money!

Thanks everyone for the detailed responses! This is incredibly helpful. I've been stressing about this since the sale went through in January. Based on what you've all shared, it sounds like I have two main options: 1. Split the payments equally across four quarters (~$65k each for federal, plus the Washington state portion) 2. Use the annualized income installment method since all my gains happened in Q1 I'm leaning toward the annualized method since it seems more accurate for my situation, but I'm definitely going to keep detailed documentation as @StarGazer101 mentioned. One follow-up question - for the Washington state capital gains tax that @Yara mentioned ($73,500 on the amount over $250k), do they follow the same quarterly schedule as federal? And can I use the annualized method for state taxes too? Also going to check out both taxr.ai and potentially use Claimyr to get official IRS confirmation. With amounts this large, I'd rather be 100% certain I'm doing everything correctly. Better safe than sorry!

Welcome to the community! Just wanted to add another perspective as someone who went through a similar large capital gains situation. One thing that really helped me was setting up a separate savings account specifically for the tax payments and transferring the estimated amounts immediately after the sale. With $1.3M in gains, you're looking at roughly $260k federal + $73.5k Washington state = ~$333k total. Having that money physically separated from my regular accounts prevented any temptation to spend it and gave me peace of mind. Also, since you mentioned this is your only income for 2025 during your sabbatical, make sure you're not missing any deductions you might be eligible for. Things like investment advisory fees, safe deposit box fees, or other investment-related expenses might help reduce your taxable gains slightly. The annualized method definitely sounds right for your Q1 sale situation. Just remember that even though it's more complex, it can save you from having large amounts tied up in overpayments to the government throughout the year. Good luck with everything!

Does anyone know if there's a penalty for submitting the W-8BEN late? I'm in a similar situation with Chase and just realized I never responded to their letter from 2 months ago...

For students on F-1 visas, this is actually a really common mixup! Banks often don't train their staff well on the different tax forms for international students vs other account holders. Since you mentioned you opened the account in mid-March and are on a student visa, you're most likely a non-resident alien for tax purposes (assuming you've been in the US for less than 5 years). This means the W-8BEN was probably the correct form, but there might have been an error in how it was filled out. The good news is that for such a small amount of interest, any withholding issues are minimal. I'd recommend calling BOA's international banking department directly - they're usually much more knowledgeable about these forms than regular branch staff. Ask them specifically what was wrong with your original W-8BEN submission and whether you need to provide additional documentation beyond the passport copy. Don't stress too much about the timing - while 30 days is preferred, banks deal with late submissions all the time, especially for international students who might not be familiar with US banking requirements.

Great thread with lots of helpful information! I wanted to add one important point that hasn't been mentioned yet - timing matters for FATCA compliance. Even if your LLC currently doesn't have foreign accounts or assets that would trigger FATCA reporting, it's worth setting up good record-keeping practices now. If you do expand internationally later (which sounds likely given your foreign client base), you'll need to track account balances throughout the entire tax year, not just at year-end. I learned this the hard way when I opened a foreign business account mid-year that briefly spiked above the FATCA threshold during a large client payment, even though it was below $50k at year-end. Since the "at any time during the year" test applies, I still had to file Form 8938. Also, be aware that currency fluctuations can push you over thresholds unexpectedly if you do end up with foreign accounts denominated in other currencies. The IRS requires you to use year-end exchange rates for the final day test, but daily rates for the "maximum value" test. Starting with good documentation habits now will save you headaches later if your business grows internationally!

One thing I'd add from my experience as a tax preparer - don't overlook state-level implications when dealing with FATCA and LLCs. While FATCA is federal, some states have their own reporting requirements for foreign assets or income that can apply even when federal FATCA reporting isn't required. For example, California has additional disclosure requirements for foreign investments that can kick in at lower thresholds than federal FATCA. If your LLC is registered in a state with aggressive tax enforcement, it's worth checking if they have parallel reporting requirements. Also, regarding the earlier discussion about PayPal - while a US PayPal account receiving foreign payments generally doesn't create FATCA obligations, be careful if PayPal offers you foreign currency holding features or if you use PayPal's international transfer services. Those could potentially create reportable foreign financial accounts depending on how they're structured. The key takeaway is that FATCA compliance isn't just about the federal requirements - make sure you're considering the complete picture including state obligations and the specific features of any financial services you use, even seemingly domestic ones like PayPal.