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1099 to Solo 401k Sequence

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  • Avatar jytaylor 
    Participant
    Status: Physician
    Posts: 1
    Joined: 02/09/2019

    I’m an employed primary care physician who also moonlights and receives independent contractor (1099) income.  I have already applied for an received an EIN, and have submitted the application paperwork to Fidelity to open a solo 401k.  My goal is to contribute the “employer” maximum allowed to this solo 401k but have a few questions about this.

    1.  I currently receive my moonlighting income via direct deposit, but it is paid to me personally (with my SSN attached a personal checking account) not my business (wit the EIN attached to the account).  In order for things to be neat and tidy from a money trail standpoint, does my 1099 income need to be paid to my business (not me) in order for the transfer to the solo 401k to go smoothly?

    2.  I already max out the employee contribution for my employed job (w-2 income), so the contributions I’ll make to the solo 401k will be as an employer.  In 2018, my 1099-misc income totaled $37,920, so I know I won’t bump into the absolute dollar contribution limits, but I’m confused if I’m allowed to contribute 20 or 25% of my 1099 income as an employer.  Seem to see both numbers in various forums, but I think as a sole-proprietorship, the answer is 20%, just wanted to confirm.

    #189483 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1861
    Joined: 02/01/2016

    As a sole proprietor, there is no difference taxwise between you personally and the business. Your payments can continue to go by direct deposit to a personal account.

    It is a good idea for expenses to be paid from a dedicated bank account and a dedicated credit card account. While I prefer to, there is no requirement for either to be business accounts.

    The reason you have seen both 20% and 25% is because employer contributions are limited to 25% of compensation. However, because self-employed employer contributions reduce compsenation. It is calculated as 20% of net self-employment earnings (business profit – 1/2 SE tax).

    #189515 Reply
    Avatar docnews 
    Participant
    Status: Physician
    Posts: 409
    Joined: 01/09/2016

    I disagree with WCI on this. There is no need to have business accounts. He argues it makes it simpler for taxes but I’d argue it makes life more complicated (your money is spread out with more accounts to check). Either way business accounts are unnecessary.

    #189518 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    I disagree with WCI on this. There is no need to have business accounts. He argues it makes it simpler for taxes but I’d argue it makes life more complicated (your money is spread out with more accounts to check). Either way business accounts are unnecessary.

    Click to expand…

    Also seems more tricky if your 1099 income is not your primary income, so some of your expenses may be shared (i.e. percentage), right?

    #189614 Reply
    Liked by docnews

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