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Options if You Have a 401(k) at Work and are Self-Employed – Episode 391

Adam Talks

In today’s episode of Adam Talks, Adam Bergman, Esq. discusses your retirement plan options if you contribute to a workplace 401(k) but also have self-employment income.

Option if You Have a 401(k) at Work and You’re Self-Employed

In this week’s episode, tax attorney and founder of IRA Financial, Adam Bergman, discusses retirement plan options for self-employed individuals. He emphasizes that even if someone has a full-time job, they can still contribute to a Solo 401(k) retirement plan for his or her side gig. A Solo 401(k) is a powerful option for the self-employed compared to a SEP IRA because it has employee deferral and mega backdoor options, a loan feature, and an exemption from the 37% unrelated business income tax.

To qualify for a Solo K, an individual’s side gig must be a business, not a hobby or passive income source; this includes any service or product selling, such as flipping homes or selling shoes on eBay. However, individuals should not violate control group rules or have any affiliations with their main company. The eligibility requirements are straightforward, and the Solo K can be set up for any legitimate side business.

Through a Solo 401(k), individuals can put away more money into their retirement than through a traditional plan. In 2023, employee deferrals of $22,500 or $30,000 for those at least 50 are allowed, and there is a 415 limit of $66,000 or $73,500. However, individuals can surpass this limit if they have multiple businesses. The employee deferral is per individual, while the profit sharing and mega backdoor Roth are per plan, and the 415 limit is per plan as well. This allows individuals with multiple businesses to put away hundreds of thousands of dollars a year.

Bergman notes that the per-plan limitation for employee deferral, profit sharing, and mega backdoor contributions, is not the same as the per-individual limitation. This means that individuals can contribute up to the annual limit, per plan. Therefore, someone can contribute to both their company plan and Solo K to maximize their contributions and potentially reach $88,500 for the year.

Bergman emphasizes the importance of contributing to retirement plans and not leaving money on the table. Even contributing an extra $4,000-$5,000 a year can make a significant difference over time, potentially leading to seven figures by retirement age. He encourages individuals to take advantage of the Solo K option, as they may be limiting themselves by thinking access to a company 401(k) plan is enough.

Overall, Bergman believes that the Solo K is the best retirement plan option for the self-employed. It is a powerful tool for those who want to take control of their retirement savings and have the ability to contribute more than through a traditional 401(k). The eligibility requirements are straightforward, and the Solo K can be set up for any legitimate side business. He encourages individuals to consider their options and take advantage of the opportunities available to maximize their contributions and potentially secure their financial future.


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