What to do with Solo401k $ until filing taxes

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  • Avatar Krentist 
    Status: Dentist
    Posts: 101
    Joined: 08/21/2018
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    For my 1099 income, I’ve opened a Solo401k and will max out the 37k available space it allows for the 2019 tax year (my W2 403b employee contribution accounting for the other 19k I’m permitted).

    So the questions is what to do with the 37k accumulated between now and filing my 2019 taxes in 2020? Seems silly to leave in cash atop an already acceptable emergency fund, but I’m not sure what (other than a MMF) makes sense to do with it.

    Any recommendations? Happy to share if more info is needed to advise.

    #198283 Reply
    Avatar spiritrider 
    Status: Small Business Owner
    Posts: 1704
    Joined: 02/01/2016

    Excess 401k employer contributions during the tax year can not be returned, are subject to a 10% excise tax until abated by future contribution space and are a real mess. So many CPA’s and owners will wait until completing the tax return the next year to be safe and know the exact amount.

    However, there is a reasonably conservative approach that can be used. Each quarter when you calculate your earned income (business profit – 1/2 SE tax) and pay estimated taxes of 90%. Make employer contributions of 90% of the 20% of earned income.

    The advantage of this is that you a paying 90% or your max contribution as you go and the last quarter’s contribution is in January of the next year. If necessary some or all of that amount can be reallocated to that year. If the estimates were good you should have 10% left to contribute when completing your tax return.

    Regardless of how you make your contributions, the only safe place for the money is a savings account or a MMF.

    #198331 Reply
    Avatar ZZZ 
    Status: Spouse
    Posts: 425
    Joined: 06/18/2018

    If you know you’re going to max out the 37k, invest it in your 401k.

    If you ‘know’…but aren’t quite sure, do what spiritrider said.

    #198397 Reply
    Liked by Krentist
    Avatar Krentist 
    Status: Dentist
    Posts: 101
    Joined: 08/21/2018

    I know I will max out ability to input the 37k. I already have for 2019, but I dont yet know if I’ll max out to a level that will let me contribute all as employER profit sharing (unlikely I will). Since it’s likely to be a mix of after tax non Roth as well as profit sharing, and don’t yet know my profit (and won’t until filing taxes in early 2020), its uncertain what amount will be in each of the (1) after tax and (2) employER profit sharing Buckets.

    #198540 Reply

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