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Last Chance Self-Employed Retirement Strategies – Episode 312

Adam Talks

In this episode of Adam Talks, IRA Financial’s Adam Bergman Esq. discusses retirement strategies for the self-employed and how the latest tax proposal may affect how you save.

The latest tax proposal has a lot of provisions related to retirement plans. Most of those are focused on IRAs, however, there are those that could affect the self-employed. Adam Bergman will share his insight on the best self-employed retirement strategies. He hopes to ensure you have the best chance to save for your future.

Set up a Solo 401(k)

The first and most important thing you can do to start saving is to set up a Solo 401(k) plan for yourself. It is, by far, the best plan for the self-employed. To be eligible, you simply need any type of self-employment activity (even if you have another full-time job) and have no employees, other than another owner and your spouses.

The biggest advantage of the plan is the contribution limit. This is the amount you are allowed to save annually and is set by the IRS. For 2021, you can contribute up to $58,000 or $64,500 if you are at least age 50. Contributions can be made with pretax or after-tax money. Taxes are deferred until you distribute the funds with a pretax 401(k). On the other hand, there is no upfront tax break with a Roth Solo 401(k). However, all qualified distributions are tax free.

Mega Backdoor Roth 401(k)

The next retirement strategy is the Mega Backdoor Roth 401(k). This strategy allows you to supersize your Roth (after-tax) savings. Solo 401(k) plans are funded as both the employee and employer. The employee contribution is the same for all 401(k) plans. You can contribute up to $19,500 or $26,000 if age 50+ for 2021. This can be made on a dollar-for-dollar basis. You can then contribute a percentage (either 20 or 25%) of your self-employed income to reach the full maximum contribution.

However, when you use the “backdoor,” you can make an after-tax contribution to a traditional plan on a dollar-for-dollar basis up to the full annual limit. From there, you would immediately convert those funds to a Roth IRA. There is no triggering event needed which allows you to move the funds from an active participant plan.

So, if you don’t need (or can’t get) an upfront tax break, you can get all that money in a Roth. Further, when you self-direct your IRA, your investment choices are almost limitless.

It’s important to remember that the tax proposal could prohibit the Mega Backdoor Roth 401(k) strategy. If approved, beginning in 2022, you will no longer be able to do this, no matter your income!

Backdoor Roth IRA

For high earners, self-employed or not, you cannot directly contribute to a Roth IRA. However, there is a backdoor for you as well. It’s a similar strategy to the Backdoor 401(k). You can simply make after-tax contributions to a traditional IRA and then convert that to a Roth. You pay the taxes due on your contributions, then no taxes will ever be due so long as you wait to withdraw those funds.

There are no income restrictions to convert traditional IRA funds to Roth. With both strategies, you must remember to perform the conversion in a timely matter. All income and gains generated would be subject to tax. Essentially, if you convert immediately, there would be no gains while the funds are sitting there. If you wait a month or a year, your investments will (hopefully) be producing gains. Those gains are not sheltered from tax. No one wants to pay more tax than they have to so it’s imperative you convert those after-tax contributions to Roth ASAP.

Again, the new tax proposal includes a provision for the Backdoor Roth IRA, for high-income earners. If you earn $400,000 annually, or $450,000 and you are jointly filing with your spouse, you will no longer be able to perform a Backdoor Roth IRA!

Further, if you are above those thresholds, you may not be allowed to perform any Roth IRA conversion. Remember, once you reach age 59 1/2, and any Roth has been opened for at least five years, you never pay tax on your Roth distributions.

Grantor Trusts

On an earlier episode of Adam Talks, Adam spoke about grantor trusts. These have become a popular estate planning tool for the self-employed. It’s a way to keep assets away from creditors and exclude them from estate tax purposes. You also retain control of those assets throughout your lifetime.

Again, the tax bill could eliminate grantor trusts. You will no longer be able to shield these assets from your estate. Effectively meaning your beneficiaries will see a much higher tax bill. You should speak with an estate planning lawyer to see how you can set up a grantor trust before it’s too late.

Also keep in mind that the unified credit will be drastically reduced from over $11 million per individual down to around $6 million. Again, this will drastically increase your tax liability for your heirs.


These are just a few of the self-employment retirement strategies Mr. Bergman talks about in this podcast. They are the most important ones if you are self-employed. Please give the entire episode a listen as he goes into further detail of other strategies you may use.

As a self-employed individual, you should be educated about everything related to retirement planning, especially those that are in discussions. These may change the way how you save for the future. Speak with your financial planner or tax attorney to ensure you to get stuck with a huge tax bill. Lastly, take advantage of the options that are available to you right now.

As always, we appreciate you taking the time to read and listen to Adam Talks. Be sure to catch all the latest episodes on our SoundCloud page, or wherever you listen to your podcasts. You can now find us on Amazon as well!


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