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How to maximize solo 401k Roth contributions?

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  • #16
    Not too mention, I think setting your reasonable compensation at exactly the annual addition limit + optionally the catch-up contribution limit is a bad idea. While a W-2 S-Corp 2% shareholder-employee cannot, a self-employed individual is able to do so.

    The same with those who set it to max employee deferrals and employer contributions. This is (annual addition limit - employee deferral limit) * 4. For 2021 this is ($58k - $19.5K = $38.5K) * 4 = $154K.

    Many don't agree with me, but it is awful coincidental that a justifiably determined "reasonable compensation" is exactly the minimum amount necessary to maximize retirement plan contributions???

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    • #17
      Originally posted by jfoxcpacfp View Post

      No, you are absolutely correct - I misread your original post. Yes, you will need to have a high enough gross to pay out your FICA (and local taxes, if applicable) at a minimum + the $64.5k to maximize your MBD Roth. Of course, 3/4 of a loaf may be better than none!
      Understood and agree, thank you!

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      • #18
        Originally posted by spiritrider View Post
        Not too mention, I think setting your reasonable compensation at exactly the annual addition limit + optionally the catch-up contribution limit is a bad idea. While a W-2 S-Corp 2% shareholder-employee cannot, a self-employed individual is able to do so.

        The same with those who set it to max employee deferrals and employer contributions. This is (annual addition limit - employee deferral limit) * 4. For 2021 this is ($58k - $19.5K = $38.5K) * 4 = $154K.

        Many don't agree with me, but it is awful coincidental that a justifiably determined "reasonable compensation" is exactly the minimum amount necessary to maximize retirement plan contributions???
        Yes, those practices seem to suggest one is skirting the intent of the regulations. Will discuss with my accountant, this is most helpful. Thank you!

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        • #19
          Especially, since it costs very little to round up a little and not be so apparent what you are doing.

          For example, instead of $64.5K. $65K = $1,250/week or $66K = $5,500/month.

          Likewise, if one has substantially more net profits and wants to maximize both employee deferrals and employer contributions.
          ​​​​​nstead of $154K. $156K = $3K/week or $13K/month.

          These can easily be adjusted to bi-weekly, semi-monthly or quarterly.

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