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Solo-401K question
Old 02-13-2012, 02:03 PM   #1
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Solo-401K question

I am looking for people who can share personal experiences with individual (solo) 401-K plans.

Likes-dislikes, do's-don't do's?

In participial one question - how do contributions get reported on taxes?
Say if I am a contractor and work on W-2 - how will I report my 401K contributions to take advantage of tax deductions?

And what the form 5498 is about?

Thx
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Old 02-13-2012, 02:08 PM   #2
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In participial one question - how do contributions get reported on taxes?
Say if I am a contractor and work on W-2 - how will I report my 401K contributions to take advantage of tax deductions?
This is a very difficult area, and you certainly don't want to get a W-2 if you're actually a contractor. If you can get paid on a 1099 basis, you can simply account for your individual 401(k) contributions on your Schedule C. That is a very easy thing to do. I'm not aware of any way to handle it with a W-2 situation.
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Old 02-13-2012, 03:24 PM   #3
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Say if I am a contractor and work on W-2 - how will I report my 401K contributions to take advantage of tax deductions?
If you are both an employee on W-2 AND you have self-employment income from your contract work, your solo 401k will be only for your contact work. Between your W-2 employer's 401k (if you use theirs) and your own solo 401k *combined*, you can contribute $17,000 (plus catch-up if you are over 50) as an *employee*. Then as an *employer*, you can contribute additional 20% or 25% of your earnings from your contract work depending how you are set up (sole prop, S-Corp, etc.).

If your contractor work is setup through a contract agency which pays you on a W-2, forget it. You are not eligible for a solo 401k.

You report on your tax return. Tax software like TurboTax or H&R Block At Home will do it for you.

Form 5498 has nothing to do with solo 401k.
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Old 02-13-2012, 08:49 PM   #4
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The Solo 401k was great for me. I was able to contribute about $29k one year without any of it being taxed, between the normal contribution, over 55 contribution, and profit sharing. It is all easily reported via Turbo Tax, though I don't remember the specific forms. I have the traditional and Roth versions for added flexibility. 1099 income, not W2.
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Old 02-13-2012, 09:17 PM   #5
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If your contractor work is setup through a contract agency which pays you on a W-2, forget it. You are not eligible for a solo 401k.
I did not see any ref about W-2 or 1099 in eligibility for solo-401K. Can you point me where you found this?
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Old 02-13-2012, 10:04 PM   #6
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I did not see any ref about W-2 or 1099 in eligibility for solo-401K. Can you point me where you found this?
A 401k, solo or not, is an employer sponsored plan. You have to be an employer in order to set up a 401k. A solo 401k is just a subtype of 401k. You either get paid by 1099 or you own a C-corp or S-corp and issue W-2 to yourself. In either case you are acting as an employer.

If you are getting a W-2 from someone else, you are just an employee like so many other employees who work for a company; you are not an employer.

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The one-participant 401(k) plan is not a new type of 401(k) plan. It is a traditional 401(k) plan covering a business owner with no employees, or that person and his or her spouse. These plans have the same rules and requirements as any other 401(k) plan.
One-Participant 401(k) Plans
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Old 02-13-2012, 11:44 PM   #7
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Get your contracting agency to convert you to 1099 or corp-to-corp. You can form an LLC/C-corp through your state, probably online, and get a federal tax id online. Easy.
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Old 02-14-2012, 07:27 PM   #8
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Thank you everyone for the answers!
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