Anothing thing with the Solo 401k is that you have to file a form 5500 with the IRS? I guess you don't have to with a SEP? What's involved with filing a form 5500, and does this need to be done annually?
It is an enlightening video and thanks for that ! Can a self-employed have both Roth and Simple and can he/she max out both or how does it work if they have both? Many thanks
I'm using a SEP and happy with it. I also have an IRA and Roth IRA which I max contribute to annually. I did my first Roth IRA conversion this year as I had a large tax credit (electric vehicle purchase) that I needed to have liability to utilize (not refundable and cannot carry forward). My situation may be different than you describe as it's just me with no employees and I am only bringing in about $100k annually (not exceeding any limits).
this was SUPER helpful! I was just about to open a SEP, watched this video and then called up my retirement company and the i401K is much better than SEP.
As a sole proprietor who has no employees, the amount I can contribute to a SEP is the same as a solo 401k and is easier to set up and transfer directly to a Roth later so I went with that option.
Q? S-Corp owner, draws $100K as w2 income and $50K as net income on S-corp (sch K1) and he is the only employee, so what will be the max Sep contributions? Is it 25% of $150K?
our first year we set up the sep ira (2 owner s corp with no other employees). our w2 income was only $10,000 each so at that point it really doesnt matter sep or solo 401k, right? since we are making more money now, if we create the solo 401k, can we move the money from the sep into it for simplicity's sake?
What if my main goal is to use SEP IRA as a write off and contribute the max $66,000 as a write off? will you still not recommend it as a tool for tax deduction? thank you for your answer in advance
@travis question for you!!! If I am a W2 employee and have a 401k with my employer company. But I also have my own LLC can I have a SEP ira and my employer 401k?? Or is it somehow considered double dipping
I have a full time job and max my 401k and Roth IRA. I have a side hustle and wanted to take advantage of the additional retirement account options available to me. With a solo 401k, I can't do any employee-side contributions anyway since I already max my work 401k, so any contributions would be employer-wise only. This is the same as the SEP-IRA, and the SEP-IRA was easier to setup, so that's what I went with. Any benefits to switching to a solo 401k for me?
Catchup - I think you (as an employee) can contribute towards IRA in addition to SEP IRA. So not having catchup in SEP-IRA does not make any difference. That's what I think.
What about if the S-Corp owner has two employee and him/herself totaling 3 employees but all of them receive 1099 and not W2. So the corporation does not provide any W2 to anyone. Now lets say the NOI is 100k, and the owner receives 20k on 1099. Would they have to provide 25% to all three employee? The owner 25% in this case would be from 100K, 20K or 120k? Thank you for your input.
Hi Travis, where would you recommend to open Solo 401k? I'm looking to open, but not a lot of options where you can have Roth and non-deductible contributions in the plan.
If you're investing yourself, you can open one at most brokerage firms but usually not the automated investing firms like robinhood or M1 Finance. I could be wrong but I don't believe they offer them. If you need help opening and investing into one, call our office. 813-321-6423. This is what we do all day.
For the SEP IRA, in your example of the $100k. Is the $100k that the 25% come out of is from Profit or gross income? So if have a side hustlle (i'm the only employee) and make $100k but had $50k in expenses. Then I can only contribute $12,500 in to the sep? (25% of my income after expenses) Thanks
@@TravisSickle So instead of a SEP I get a solo 401k and instead of 20% of my net profits into a sep I can do 100% of my net profits into a solo 401k. Is that what your saying just to confirm?
@@TravisSickle Got it, I've got 2 full time employees and own a landscaping company. Just looking for retirement options and the sep ira sounds expensive, so possibly just the roth ira and invest in certain mutual funds with high returns? Does that sound like the best option?
@@michaeldavis3188 Roth maxes at $6k, if you want to save more then you will need another plan. The SIMPLE IRA may be a good option with an elective deferral for employees. Meaning, if they don't save then you don't contribute anything to their accounts.
I asked ChatGPT about employee contribution and it replied with this. Are you sure the percentage has to be the same/ No, your personal contributions to a SEP IRA do not affect the amount that you are required to contribute on behalf of your employees. The contributions you make to your own SEP IRA are completely separate from the contributions you make on behalf of your employees. As an employer, you are required to make contributions to each eligible employee's SEP IRA, up to the maximum contribution limit. The amount that you contribute to your own SEP IRA is based on your own compensation and the percentage that you choose to contribute.
@@TravisSickle called and confirmed with Vanguard and you are right. Important point too, it’s not a paycheck deduction but an employee contribution, so it’s on top of the existing pay. I guess that how it gives the tax benefits too
This is not correct. You can contribute up to 25% of the employee's total compensation or a maximum of $66,000 in a SEP IRA. You can purchase stocks, ETF's, mutual funds etc into a SEP. The Solo 401K you're limited to mutual funds. You can also open a ROTH 401K and invest the max as the employee. As a single owner S-Corp you can lower your salary and your SEP contributions along with health insurance is part of your compensation thereby lowering your taxes. There is no way anyone should have all of their investments in mutual funds.
Travis, Thanks for flagging this issue. I wonder if this strategy make sense if my S-Corp has 2 equal owners (no employees) AND we expect our wages will allow us to max out the SEP-IRA contribution limits?
Anothing thing with the Solo 401k is that you have to file a form 5500 with the IRS? I guess you don't have to with a SEP? What's involved with filing a form 5500, and does this need to be done annually?
It is an enlightening video and thanks for that ! Can a self-employed have both Roth and Simple and can he/she max out both or how does it work if they have both? Many thanks
I'm using a SEP and happy with it. I also have an IRA and Roth IRA which I max contribute to annually. I did my first Roth IRA conversion this year as I had a large tax credit (electric vehicle purchase) that I needed to have liability to utilize (not refundable and cannot carry forward). My situation may be different than you describe as it's just me with no employees and I am only bringing in about $100k annually (not exceeding any limits).
Yeah, it makes sense if it’s a minimum amount. However, if you wanted to contribute more, the solo 401k would be the ticket.
this was SUPER helpful! I was just about to open a SEP, watched this video and then called up my retirement company and the i401K is much better than SEP.
agree
As a sole proprietor who has no employees, the amount I can contribute to a SEP is the same as a solo 401k and is easier to set up and transfer directly to a Roth later so I went with that option.
Usually causes more issues doing it that way. Also not likely tax savvy only contributing and converting it all.
Q? S-Corp owner, draws $100K as w2 income and $50K as net income on S-corp (sch K1) and he is the only employee, so what will be the max Sep contributions? Is it 25% of $150K?
SEP is based on INCOME ONLY. Distribuition are not taking in consideration for SEP contribution. so 25% of w2 Income ONLY
correct.
our first year we set up the sep ira (2 owner s corp with no other employees). our w2 income was only $10,000 each so at that point it really doesnt matter sep or solo 401k, right? since we are making more money now, if we create the solo 401k, can we move the money from the sep into it for simplicity's sake?
On the solo 401k can I put the employee portion on my Sch C instead of adj to income?? No employees. I really enjoy your videos! 😊
What if my main goal is to use SEP IRA as a write off and contribute the max $66,000 as a write off? will you still not recommend it as a tool for tax deduction? thank you for your answer in advance
Thank you
@travis question for you!!! If I am a W2 employee and have a 401k with my employer company. But I also have my own LLC can I have a SEP ira and my employer 401k?? Or is it somehow considered double dipping
ruclips.net/user/shortsyab67iT-orM?feature=share
I have a full time job and max my 401k and Roth IRA. I have a side hustle and wanted to take advantage of the additional retirement account options available to me. With a solo 401k, I can't do any employee-side contributions anyway since I already max my work 401k, so any contributions would be employer-wise only. This is the same as the SEP-IRA, and the SEP-IRA was easier to setup, so that's what I went with. Any benefits to switching to a solo 401k for me?
This is a great question and I’m going to need to do a video on this.
This is my situation as well been contributing to a SEP as well. Love to see the video of your thoughts on this.
Can an Uber Eats driver open a solo 401k? I was told by my tax professional "no" but i dont think that's correct
Catchup - I think you (as an employee) can contribute towards IRA in addition to SEP IRA. So not having catchup in SEP-IRA does not make any difference. That's what I think.
Not the same amounts.
If I have a SEP IRA, can I convert it to a Solo 401k?
Rollover, yes
What about if the S-Corp owner has two employee and him/herself totaling 3 employees but all of them receive 1099 and not W2. So the corporation does not provide any W2 to anyone. Now lets say the NOI is 100k, and the owner receives 20k on 1099. Would they have to provide 25% to all three employee? The owner 25% in this case would be from 100K, 20K or 120k? Thank you for your input.
It’s only for eligible w2 employees. You may run into issues paying yourself a 1099.
@@TravisSickleThank you for the input.
s corp owner absolutely has to w2 themselves a "fair and reasonable" salary
Not always but usually do. If you have no active involvement then no.
Hi Travis, where would you recommend to open Solo 401k? I'm looking to open, but not a lot of options where you can have Roth and non-deductible contributions in the plan.
I use the solo 401k for myself for that reason.
If you're investing yourself, you can open one at most brokerage firms but usually not the automated investing firms like robinhood or M1 Finance. I could be wrong but I don't believe they offer them. If you need help opening and investing into one, call our office. 813-321-6423. This is what we do all day.
For the SEP IRA, in your example of the $100k. Is the $100k that the 25% come out of is from Profit or gross income? So if have a side hustlle (i'm the only employee) and make $100k but had $50k in expenses. Then I can only contribute $12,500 in to the sep? (25% of my income after expenses) Thanks
It's 20% if you are filing as a schedule C. S-corp is 25%. You could save more with a solo 401k. You could save all of it with profits of $50k.
20% of your net profit.
@@TravisSickle So instead of a SEP I get a solo 401k and instead of 20% of my net profits into a sep I can do 100% of my net profits into a solo 401k. Is that what your saying just to confirm?
almost, watch tomorrow nights video...posts at 6pm...I would share it earlier, but RUclips won't let me share a video before it's live.
I thought you couldn't use the solo 401K if you had employees. What should you do if you have employees?
SIMPLE IRA, SEP IRA, or 401k....it really depends on the amount you want to save. There are a ton of different ways to do it.
@@TravisSickle Got it, I've got 2 full time employees and own a landscaping company. Just looking for retirement options and the sep ira sounds expensive, so possibly just the roth ira and invest in certain mutual funds with high returns? Does that sound like the best option?
@@michaeldavis3188 Roth maxes at $6k, if you want to save more then you will need another plan. The SIMPLE IRA may be a good option with an elective deferral for employees. Meaning, if they don't save then you don't contribute anything to their accounts.
Hi Travis I would love to hear your opinions and follow up commentary with the roll out of the new secure act 2.0 changes.
Already posted.
I asked ChatGPT about employee contribution and it replied with this. Are you sure the percentage has to be the same/
No, your personal contributions to a SEP IRA do not affect the amount that you are required to contribute on behalf of your employees. The contributions you make to your own SEP IRA are completely separate from the contributions you make on behalf of your employees.
As an employer, you are required to make contributions to each eligible employee's SEP IRA, up to the maximum contribution limit. The amount that you contribute to your own SEP IRA is based on your own compensation and the percentage that you choose to contribute.
That’s not entirely correct. You’ll have to do the same percentage based on their income.
@@TravisSickle called and confirmed with Vanguard and you are right. Important point too, it’s not a paycheck deduction but an employee contribution, so it’s on top of the existing pay. I guess that how it gives the tax benefits too
This is not correct. You can contribute up to 25% of the employee's total compensation or a maximum of $66,000 in a SEP IRA. You can purchase stocks, ETF's, mutual funds etc into a SEP. The Solo 401K you're limited to mutual funds. You can also open a ROTH 401K and invest the max as the employee. As a single owner S-Corp you can lower your salary and your SEP contributions along with health insurance is part of your compensation thereby lowering your taxes. There is no way anyone should have all of their investments in mutual funds.
July 12, 2023
Elise Loaf
Well, you've definitely sold my on the Solo 401k!
Travis, Thanks for flagging this issue. I wonder if this strategy make sense if my S-Corp has 2 equal owners (no employees) AND we expect our wages will allow us to max out the SEP-IRA contribution limits?
Most likely the solo is still a better plan. Wages vs the distributions will likely lower total taxes.