401k

[newinvestor]

I am switching jobs at the end of the year to a new practice as a W2 employee which does not let you open a 401k with them until you have been with them for at least 1 year. I was wondering if I get some of the money from them only as 1099 while the rest stays as W2, would I be able to open an individual 401k account? Thank you in advance.

[jfoxcpacfp]

newinvestor wrote:

I am switching jobs at the end of the year to a new practice as a W2 employee which does not let you open a 401k with them until you have been with them for at least 1 year. I was wondering if I get some of the money from them only as 1099 while the rest stays as W2, would I be able to open an individual 401k account? Thank you in advance.

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Yes, you would be able to do that. Their CPA might be reluctant to recommend doing so unless there is some work for which you could truly be paid as an IC but it sure wouldn't hurt to ask.

[wolverine41]

Hi Johanna -

 

I have 20k in signing bonus that I confirmed will be categorized as 1099 this year. I plan on opening a solo 401(k) with it,  separate from my work 401(k). How much of that 20k can I put away this year? Also, can I just open this through a brokerage like TD Ameritrade?

[jfoxcpacfp]

This is perfect! You can put in $18k + 20% of your net business profits. Since you'll probably have some business deductions to offset, I would just plan on $18k.

[newinvestor]

Thank you Johanna. That's helpful.

[Jag295]

I have the same issue. My W2 job won't let me make employee contributions to their 401k until after 1 year. If I ask for my $20k sign on bonus to be paid to me as 1099, could I use that to open a solo 401k? How much of that could I use, assuming I haven't made any other employee contributions in 2018?

[jfoxcpacfp]

Jag295 wrote:

I have the same issue. My W2 job won’t let me make employee contributions to their 401k until after 1 year. If I ask for my $20k sign on bonus to be paid to me as 1099, could I use that to open a solo 401k? How much of that could I use, assuming I haven’t made any other employee contributions in 2018?

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Yes, you could open a solo-k based upon your 1099 income and contribute up to $18,500. I would not contribute that much until after you have prepared your 2018 income taxes, however, because you will have some expenses to offset the $20k and you have to reduce your net profit by your FICA taxes, too. To be safe, contribute $10k and the balance when your taxes are finalized.

[Jag295]

Thanks Johanna, what expenses are you referring to? Is the $18,500 sheltered from FICA taxes, or do you pay the 15.3% on 1099 income first, then put what's left in the solo 401k?

[jfoxcpacfp]

No, you pay FICA on the $18,500. You should be able to prorate and deduct some job-related expenses, travel, CPA fees, contract review, etc.