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Is solo 401k set up worth is for short term high earning 1099 employment

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  • Is solo 401k set up worth is for short term high earning 1099 employment

    Stage of Life:
    New ER attending, graduated June 2021
    Job 1: Per Diem W2 employee
    Job 2: Per Diem 1099 employee
    30% / 70% split (70% of income from 1099 job at the moment)
    Fingers crossed will lock in full time position at Job 1 (W2) to start June / July 2022, great job, pension plan, matching contributions etc

    Annual Income:
    Anticipate approximately $200k from job 2 (1099) in earnings over a 12 month period (June to June), the rest from job 1 W2 per diem position

    Social Situation:
    Married, no kids, wife is 1099 at a part time job ~30-40k/year

    Net Worth:
    neg $110k.
    200k in student loans
    $50k in savings account - two months of attending work
    $50k in his and hers Fidelity Roth IRA (combined)

    State of residence:
    CA
    looking to purchase home in one year (likely physician loan), very expensive housing market where I live

    Insurance Policies:
    Disability Insurance only

    My specific questions:
    Financial advisors / CPA fees are quite pricey, if I lock in the W2 position at the goal job next year I can probably due without a financial advisor (well see), but I am having difficulty navigating how to save on taxes, not pay significant penalties during this transition year with multiple jobs

    - Should I open a solo 401k plan to contribute with earnings from the 1099 (job 2)?
    -------If so, recommendations on other posts or website to see how to easily navigate this properly? Very confused
    -------Should I go with fidelity if so, since have the Roth IRA with them?
    -------Any recs on how much to contribute ? Confused on the employer / employee side of things...
    -There is a 403b contribution option from the W2 job 1 position as well, not sure if I should contribute here at all or only on the solo 401k? Which do I max contributions at first...?

    Appreciate your help everyone!
    Stay Safe.

  • #2
    - Should I open a solo 401k plan to contribute with earnings from the 1099 (job 2)?
    -------If so, recommendations on other posts or website to see how to easily navigate this properly? Very confused
    Actually opening it is very easy. Doesn't take much time at all.
    https://financialpanther.com/fidelity-solo-401k/

    -------Should I go with fidelity if so, since have the Roth IRA with them?
    Fidelity is good. Don't use Vanguard. We use Fidelity.

    -------Any recs on how much to contribute ? Confused on the employer / employee side of things...
    -There is a 403b contribution option from the W2 job 1 position as well, not sure if I should contribute here at all or only on the solo 401k? Which do I max contributions at first...?
    This is a bit tricky. You would want to decide where to put your employee contribution based on the investment options in the W2 job vs fidelity vs matching. You won't want to miss out on the matching at W2 job so contribute at least that amount. If their funds suck, then you would put the rest in Fidelity.
    Otherwise, you want to open the solo 401k even if you put all your employee contribution in the W2 job. Both to add employer portion but also nice to have solo K for future 1099 or for rollovers.


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    • #3
      childay
      Physician
      childay Thank you so much! this is exactly the link I needed. If I end up securing the long term with a W2 position, what is the best way to manage that solo 401 account? assuming I would never have another 1099 position. Roll it over into another account, transfer to the W2 retirement account?

      Lastly, any links to posts or advice on how to prepare for filing for the tax filing season, I keep reading out writing off portions of my rent, other expenses, and want to make sure I have all of my boxes checked correctly!

      Comment


      • #4
        Keep it in the solo 401k. You could roll it over into the 403b possibly. I would keep the solo 401k open for the future.

        Comment


        • #5
          Originally posted by Tim View Post
          Keep it in the solo 401k. You could roll it over into the 403b possibly. I would keep the solo 401k open for the future.
          Right, leave it where it is.

          Are you planning on doing your own taxes? That's a whole other discussion. Deducting rent as a ER doctor??? You can't have much expenses aside from scrubs (legitimate deduction).

          Comment


          • #6
            Note that you + employers can contribute no more than an aggregate of $58k to the 403b+solo-k for 2021. To put it another way, even though it appears you’ll have enough net profits from 1099 income to contribute the full $58k, you are limited to ($58k - (employee+employer PS contributions to the 403b)).
            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              I have a different take on the choices.
              • You should definitely adopt a one-participant 401k and make contributions.
              • However, if you will be eligible for the QBI deduction, you should make all of your pre-tax employee deferrals to the 403b.
              • This is because pre-tax contributions to an employer retirement plan reduce your qualified business income (QBI) that the QBI deduction is based on.
              • You generally should have a minimum retirement savings contribution rate of 20%. Based on the numbers provided you should be able to maximize the annual addition limit (2021 = $58k).
              • A 403b participant is considered to control their 403b plan. 403b annual additions must be aggregated with the annual additions of employer retirement plans of any business > 50% owned by the 403b participant.
              • So I recommend maximizing your 403b employee deferrals and contributing 20% of your net earnings from self-employment (earned income) = business profit - 1/2 SE tax.
              • Maximum one-participant 401k employer contributions = $58K - 403b (employee + employer) annual additions.

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              • #8
                childay
                Physician
                childay
                I was planning on doing my own taxes, reading a bit on that before hand (just seeing the cost of some of the quotes I've received from CPAs) ~ several hundred dollars a month once broken down.. Is doing your own taxes something you strongly recommend against? I have a friend who is 1099 ER doc, who's CPA I guess helps him deduct some of his rent, gas / car expenses (but had to make a dedicated office space in his home, had to make a business credit card/ bank account).. Would you say this may raise a red flag? I obviously want to save as much as I can, while at the same time not doing anything that isn't legitimate .
                Thanks for all the help.

                Comment


                • #9
                  spiritrider
                  Member
                  spiritrider thanks for the input, I've been reading into this and might message you privately if that's ok, setting up my solo 401k soon and have to talk with the 403b account people - (may have missed the deadline to contribute). ​

                  Comment


                  • #10
                    Originally posted by ERMammoth View Post
                    childay
                    Physician
                    childay
                    I was planning on doing my own taxes, reading a bit on that before hand (just seeing the cost of some of the quotes I've received from CPAs) ~ several hundred dollars a month once broken down.. Is doing your own taxes something you strongly recommend against? I have a friend who is 1099 ER doc, who's CPA I guess helps him deduct some of his rent, gas / car expenses (but had to make a dedicated office space in his home, had to make a business credit card/ bank account).. Would you say this may raise a red flag? I obviously want to save as much as I can, while at the same time not doing anything that isn't legitimate .
                    Thanks for all the help.
                    Much has been written on home office. Google "home office deduction" or search this site as well. I will defer to jfox et al who are more knowledgeable. But an ER doc having a IRS legitimate home office sounds strange, are you really doing charts at home or telemedicine? And using it for how much time? Etc.
                    I don't do my own taxes, but if we didn't have s-corp I probably would. Also IRS keeps sending these pesky letters

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