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Does solo 401k make sense for me?

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  • #16
    I have a general question regarding setting up the s401k. For your side gig, do you have to set it up as a separate business, or can you just use 1099 income that is unrelated to your primary job to fund it without formally creating a separate business with its own tax ID #? For example, I have a safe harbor 401k from my employer where I defer $19,500 as well as a 4% match. I have another 60k of 1099 income from doing QME evaluations. Can I just place 20% of that 1099 income (12k/yr) into a s401k? Appreciate the help.

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    • #17
      Originally posted by AE View Post
      I have a general question regarding setting up the s401k. For your side gig, do you have to set it up as a separate business, or can you just use 1099 income that is unrelated to your primary job to fund it without formally creating a separate business with its own tax ID #? For example, I have a safe harbor 401k from my employer where I defer $19,500 as well as a 4% match. I have another 60k of 1099 income from doing QME evaluations. Can I just place 20% of that 1099 income (12k/yr) into a s401k? Appreciate the help.
      You've kind of muddled 2 issues and asked another question:
      1. A side gig is a separate business. You, as the "proprietor" are self-"employed".
      2. However, if you are not forming an LLC or incorporating (which I probably wouldn't recommend, anyway), then you do not necessarily have to get an EIN for a sole proprietorship.
      3. However (again), if the solo-k custodian requires it, or if you just want to keep your SSN as private as possible (recommended), then you will need to get an EIN.
      It takes probably about 2 minutes to get an EIN online.

      To answer your last question: No, you cannot simply calculate 20% of the 1099 income and plop it into a solo-k. You are allowed to deduct any related expenses. If there are none (would surprise me), then you will calculate FICA taxes on the 1099 income and reduce your net profit by 1/2 of FICA taxes. Then you are allowed to contribute 20% of the net.

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      • #18
        That was very helpful, thank you.

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        • #19
          The Finance Buff has a solo 401k contribution calculator online that is pretty helpful. I would start there to get a basis. https://docs.zoho.com/sheet/publishe...05e8140934898a

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