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Solo 401k with just one 1099 paycheck

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  • Solo 401k with just one 1099 paycheck

    I just recently switched practices and still work as W-2 employee.  My last paycheck from my old group was given to me as a 1099 payment of about 25K.  Would it be worth it to open a solo 401k just for that one payment and place 20% in as an employer contribution?  I already max out my employee contribution at my other 401k of 18K.  I am not anticipating any further 1099 income in the near future.  Thanks.

  • #2
    I think so. Not only can you sock away some extra money, but this solo K can be a pot for future rollovers. Most of us will change jobs. Would not use vanguard for solo K since they don't accept rollovers. TDA has a roth option. I don't think Fidelity does. Both TDA and Fidelity accept rollovers.

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    • #3




      I just recently switched practices and still work as W-2 employee.  My last paycheck from my old group was given to me as a 1099 payment of about 25K.  Would it be worth it to open a solo 401k just for that one payment and place 20% in as an employer contribution?  I already max out my employee contribution at my other 401k of 18K.  I am not anticipating any further 1099 income in the near future.  Thanks.
      Click to expand...


      Miss Bonnie MD is right. Even more important than the extra 20% deduction from your contribution is having the SOLO-k open to use as a receptacle for future IRA rollovers. This preserves your ability to contribute to nondeductible IRAs and then convert to Roths (aka the "backdoor Roth" strategy).

      Just to clarify, though - you are talking about a 2017 payment, not a 2016 payment - correct? If it was for 2016, it's too late to open a 401k.

      Must say that I'm surprised they would treat your final "paycheck" as 1099 income. You could cause a stink about it (suppose they were trying to cut off benefits and Medicare early), but better to take advantage of the opportunity.
      Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        landrat76,

        When did you actually receive the check. Was it in 2016 or 2017? When you did the work does not matter. When you actually got the control of your money matters. So if you received the check in 2017, YES you should open a solo 401(k) as noted by posters above for the benefit of having it for future roll overs.

        If you received the check in 2016 it is too late to open a 401(k) now. What you can do instead is open a SEP IRA for now and make contributions for 2016 into it till tax deadline (October 2017, if you file an extension). If you manage another 1099 income somehow this year, then use that to open a solo 401(K) with a trustee who will allow incoming transfers and then transfer your SEP IRA to the solo 401(k) thus having an opening for doing the Backdoor Roth for 2017. If you do not think that you will have another 1099 this year but if your new employer 401(K) accepts incoming transfers, roll into that. If both of the options are not feasible you can just pay tax on the money in the SEP and convert it into a Roth or just dont worry about putting money into a SEP in the first place and consider it an opportunity missed.

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        • #5
          The paycheck was received in 2017. I am debating between a solo 401k and a SEP IRA with a rollover into my current employer 401k.

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          • #6
            As posted by multiple posters above, solo 401k without a question as it helps in future for a roll over independent of an employer 401(k) and also preserves the chance to do backdoor Roth. You would need to complete the set up of your 401(k) by December 31, 2017. You can make contributions into that 401(k) till April/October 2018 depending on if you applied for extension or not. Mine took about a month to set up so would not delay till last minute. Recommend against having it by Vangauard due to multiple reasons noted on this website by others.

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