W-2 or 1099 ?

[Asteroid]

Hi everyone, a long time WCI blog reader here. I have been contemplating about my work tax situation for a while.

I am a mid level healthcare provider, with annual income 150,000, there's a 5% raise each year, however no 401k plan or any other employed sponsor plans, no HSA either. beside the (lack of) 401k, benefits are good: medical/dental, paid vacation, malpractice/CME covered, and my schedule is flexible with 1-2 work from home days each week (with full time pay), which is what I like about the position. and I have no intention of leaving in the near future.

So here are the questions:

1. if all benefit packages being equal, is it wise for me to ask to switch to 1099 instead of the current W-2 ? I have been looking at my tax return, about 40% is gone after Fed/state/city (I live in a heavily taxed state in the east coast). and the lack of tax deferred retirement plan is really hurting my take home income (currently single, no kids, no mortgage/property tax to deduct), have been doing backdoor Roth IRA each year. all student loan paid off. and just starting a 509 account this year since I will most likely marry my current boyfriend and have kids.  my taxable account is 90% and my Roth IRA is about 10% of total investment. being a sole proprietor, I can open a solo 401k and have some tax deduction.

2. would there be any legal ramification which hurts me more for being a sole proprietor in the case of a lawsuit ? I am in a specialty with no exposure to surgery (my boss does surgery), and since I started working at this job 4-5 yrs ago, we have not have a lawsuit (yet), if I do switch to sole proprietor, should I obtain extra insurance on top of my current malpractice insurance ? (my current coverage is per incident 2M/annual 4M)

I saw a recent post with similar topic discussed (https://www.whitecoatinvestor.com/forums/topic/options-when-no-401k-offered/), just wanted to see if my tax situation will be better if I switched to being a sole proprietor.

sorry this is a lengthy post, thanks for taking the time to read, any feedback will be greatly appreciated !!

[jfoxcpacfp]

 

Sorry, but too many moving parts here. I doubt you would have such a good benefit package as an IC. Yes, it would be helpful if you had a SOLO-k. Also, you cannot start a 529 until you are a parent.

Remember, the fact that you don't have a lot of itemized deductions means that you have more money in your bank account. You might consider buying a house, but don't do so just for the interest/RE tax deduction.

Suggest you speak to a CPA or CFP who can discuss your specific situation in detail and give personal advice.

[hrain]

Hi there,

I'm sorry, I don't actually have too much to contribute at the moment other than saying that I don't know for sure if you'd be able to switch but it sounds like a good option if it's possible. However, I agree with Joanna that the solo 401k would be great, but it's true that it could hurt if your other benefits change.

 

However, I did want to say that you CAN create a 529 before you're a parent. You can make it in your name, let it grow, and then move it to your child's account when he/she is born...the ability to move it to family members is one of the best things about it! Now, whether or not that's actually beneficial at this point before other stuff (retirement, etc) is figured out is an entirely different debate, but it IS possible and doesn't break any laws or rules or anything like that.

Good luck!

[jfoxcpacfp]

hrain wrote:

However, I did want to say that you CAN create a 529 before you’re a parent. You can make it in your name, let it grow, and then move it to your child’s account when he/she is born…the ability to move it to family members is one of the best things about it! Now, whether or not that’s actually beneficial at this point before other stuff (retirement, etc) is figured out is an entirely different debate, but it IS possible and doesn’t break any laws or rules or anything like that.

Click to expand...

@hrain - thank you for the clarification. You are exactly right. I was going from memory (not a good thing, obviously!) and forgot about the option to name a different beneficiary. Appreciate the assist very much  !

[Asteroid]

Hi, thanks for taking the time to read the post

@ jfoxcpacfp when I first started this job, I was offered either 1099 or W-2, back then I didn't know about many of the investment vehicles, thus chose W-2. If my calculation is correct, with 150k income, I can shelter about ~44k each year to a solo 401k, and even with the addition self employed tax, I should be able to have ~9-10k more take home pay compare to what my take home pay is now.  still thinking if I should bring this up to my boss (I agree, I may or may not have the same benefits), I feel like this would be beneficial to him too, since he is not paying that 7.5% of the employer tax. I will consult a CPA/CFP if I can switch.

 

@ hrain most of my assets are in taxable account (90%) with only a small portion in tax deferred (10%), and I am on a good track to my ultimate goal (have 25x annual expense in portfolio), retirement planning is a bit more complicated since anything I do in a taxable account can create additional tax, that's why I'm trying to explore other ways to have more in tax shelter account, and decrease the tax burden.  having a 529 only saves me a little bit in tax return, if I don't end up using it on my (future) children, I still have the option have giving it to other family members.