Running your own self-employed business is tough! A tool that can potentially help save more and/or reduce tax is the solo 401k!
A //THREAD\\ on its benefits and some FAQ...
First, let's start with the benefits and why I like the solo 401k 👇
A //THREAD\\ on its benefits and some FAQ...
First, let's start with the benefits and why I like the solo 401k 👇
1/9
1️⃣ Invest more: Offer higher contributions over IRAs
2️⃣ The spouse exception! If your spouse earned income from the business as an employee, they can contribute and get profit-sharing $. This can double the contributions!
1️⃣ Invest more: Offer higher contributions over IRAs
2️⃣ The spouse exception! If your spouse earned income from the business as an employee, they can contribute and get profit-sharing $. This can double the contributions!
2/9
3️⃣ Reduce taxes: Pre-tax contributions reduce taxable income. Higher limits allow for the ability to pay less tax to Uncle Sam.
4️⃣ Roth solo 401k: Ability to add a Roth Solo 401k in addition to traditional solo 401k to make Roth contributions without income limits.
3️⃣ Reduce taxes: Pre-tax contributions reduce taxable income. Higher limits allow for the ability to pay less tax to Uncle Sam.
4️⃣ Roth solo 401k: Ability to add a Roth Solo 401k in addition to traditional solo 401k to make Roth contributions without income limits.
3/9
5️⃣ Mega backdoor Roth: Supercharge Roth money with after-tax (if plan allows) contributions, then converting it to Roth 401k.
6️⃣ Diversification: Diversify investments outside of your business.
5️⃣ Mega backdoor Roth: Supercharge Roth money with after-tax (if plan allows) contributions, then converting it to Roth 401k.
6️⃣ Diversification: Diversify investments outside of your business.
4/9
7️⃣ Loans: The option to take loans from the plan can give flexibility to a small business owner. While not recommended, this can be a valuable source of funds in a pinch.
7️⃣ Loans: The option to take loans from the plan can give flexibility to a small business owner. While not recommended, this can be a valuable source of funds in a pinch.
5/9
▻What's a solo 401k?
Qualified plan for self-employed or small biz owners with no full-time W2 employees (other than partners or spouse).
▻Who qualifies?
Small business owners, sole proprietors, freelancers, independent contractors (full-time biz or your side hustle!)
▻What's a solo 401k?
Qualified plan for self-employed or small biz owners with no full-time W2 employees (other than partners or spouse).
▻Who qualifies?
Small business owners, sole proprietors, freelancers, independent contractors (full-time biz or your side hustle!)
6/9
▻What are the contribution limits?
As a self-employed person, you are both the employee and employer.
Contributions up to $57,000 (2020) and $58,000 (2021). Over age 50? You get catch-up contributions of an additional $6,500.
▻What are the contribution limits?
As a self-employed person, you are both the employee and employer.
Contributions up to $57,000 (2020) and $58,000 (2021). Over age 50? You get catch-up contributions of an additional $6,500.
7/9
Employee contributions: Up to $19,500 (+$6,500 age 50+). Employer contributions: Up to remaining $37,500 (2020)/$38,500 (2021).
▻How to determine the amount?
The employee contribution is up to 100% of earned income. Employer contribution up to 25% of net earnings.
Employee contributions: Up to $19,500 (+$6,500 age 50+). Employer contributions: Up to remaining $37,500 (2020)/$38,500 (2021).
▻How to determine the amount?
The employee contribution is up to 100% of earned income. Employer contribution up to 25% of net earnings.
8/9
▻When is the deadline to establish a solo 401k?
For 2020 and forward the deadline is the business filing deadline or tax deadline, including extensions. Meaning you can adopt a solo 401k for the previous year up to the tax deadline.
▻When is the deadline to establish a solo 401k?
For 2020 and forward the deadline is the business filing deadline or tax deadline, including extensions. Meaning you can adopt a solo 401k for the previous year up to the tax deadline.
9/9
▻When is the contribution deadline?
Employee contributions: Elections must be made by Dec 31. The actual contribution can be made up to the personal tax filing deadline or extension.
Employer contributions: Up to the tax filing deadline of the business.
[END]
▻When is the contribution deadline?
Employee contributions: Elections must be made by Dec 31. The actual contribution can be made up to the personal tax filing deadline or extension.
Employer contributions: Up to the tax filing deadline of the business.
[END]
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