Solo 401k for survey money

[cutis]

Apparently I take a lot of those physician surveys...  I've gotten a couple of 1099s totaling around $1600. I'd love to be able to put that money in a roth 401k. Is this possible without a ton of effort? I am employed and maximize my employee contributions. Employer contributes via profit sharing minimally but not to 50K.

 

[The White Coat Investor]

Yes, you can do that. You'll need an EIN. Assuming you've used your employee contribution elsewhere, you're only going to be able to contribute something like $300 to it.

But if you needed an individual 401(k) in order to do a rollover, surveys (or similar easy side gigs) can be a very slick trick to become eligible for an individual 401(k).

[Marko-ER]

Yep, you can do it.  But even if you contribute everything (assuming you do NOT already max out 18K for your 401k through regular work), $1600 is almost not worth it.  But if you use that as an impetus to do more next year, and perhaps increase your consulting income stream beyond surveys, then why not?  In my research into the topic, vanguard is the easiest with good selection of funds for solo 401K, but as WCI mentions above you do need to incorporate and get EIN (it's super easy in most states).

I have a related question, to anyone knowledgable on the subject (sorry to hijack the post OP, somehow I think this will be useful to you, too):

I recently established a Solo 401(k) for my small business.  I know I can contribute up max $18,000 per person as an employee (for solo, only myself and my wife), basically 18K combined for both my regular W2 job and this small business.  But I am a bit confused about my contributions as an employer.  There is just a lot of conflicting information out there on the internet:  Employer contributions cannot be ROTH and cannot exceed 25% (& here is the question) – does 25% refer to the profits (income minus expenses) of the small business or 25% of the total proceeds/income?  Thanks for the clarification.

[jfoxcpacfp]

Marko-ER wrote:

but as WCI mentions above you do need to incorporate and get EIN (it’s super easy in most states).

Click to expand...

Correction - you do not need to incorporate (WCI did not mention, either).

Marko-ER wrote:

does 25% refer to the profits (income minus expenses) of the small business or 25% of the total proceeds/income?  Thanks for the clarification.

Click to expand...

The calculation is based on the net profits, not the gross income.

btw, I like this particular calculator and refer to it often, but they have not updated it for 2017 yet.

[The White Coat Investor]

Correct. You need an EIN, but do not need to incorporate. A sole proprietorship can have an individual 401(k). EIN is cheap and easy. Hold on for a post on Friday about this technique.

[DMFA]

Marko-ER wrote:

Yep, you can do it.  But even if you contribute everything (assuming you do NOT already max out 18K for your 401k through regular work), $1600 is almost not worth it.  But if you use that as an impetus to do more next year, and perhaps increase your consulting income stream beyond surveys, then why not?  In my research into the topic, vanguard is the easiest with good selection of funds for solo 401K, but as WCI mentions above you do need to incorporate and get EIN (it’s super easy in most states).

I have a related question, to anyone knowledgable on the subject (sorry to hijack the post OP, somehow I think this will be useful to you, too):

I recently established a Solo 401(k) for my small business.  I know I can contribute up max $18,000 per person as an employee (for solo, only myself and my wife), basically 18K combined for both my regular W2 job and this small business.  But I am a bit confused about my contributions as an employer.  There is just a lot of conflicting information out there on the internet:  Employer contributions cannot be ROTH and cannot exceed 25% (& here is the question) – does 25% refer to the profits (income minus expenses) of the small business or 25% of the total proceeds/income?  Thanks for the clarification.

Click to expand...

If you are a sole proprietorship (basically, not taxed as a corporation), then it's 20% of net income, defined as income, minus expenses, minus 1/2 self employment tax.  So if you make $20,000 and have $2,000 of expenses, and *assuming* 15.3% for self-employment tax:

• (20,000 - 2,000) * (1-[15.3%/2]) * 0.2


• 18,000 * .9235 * 0.2


• $3,324.60 would be the maximum employer contribution.

[spiritrider]

jfoxcpacfp wrote: btw, I like this particular calculator and refer to it often, but they have not updated it for 2017 yet.

That is a good general purpose calculator but it gives incorrect results in two situations.

The first is when there is self-employment income only. The employer contribution is wrong when the net self-employment income (net business profit - 1/2 SE tax) < maximum employer deferral * 5/3 = $30,000 in 2016/17. The calculator fails to implement steps 11/12 from IRS Publication 560, Deduction Worksheet for Self-Employed. Vanguard's calculator is the only one I know that does this correctly.

The second is it always assumes self-employment only. It will give an incorrect result when some or all of the net self-employment income is not subject to the Social Security portion of the SE tax. This is almost always true for physicians moonlighting.

The only ways I know to calculate this correctly is manually with Schedule SE and Publication 560, tax software, or "The Finance Buff"'s Spreadsheet. It is a spreadsheet so it might be a little much for the uninitiated, but he also uniquely handles the 415c annual limit issue for those with 403b plans.