Side Business Income Strategy?

[SkinsFan0521]

Hi,

My wife and I currently work full time and each max our Roth 401k with our employers and also max our Roth IRA accounts. I've recently started a side business of my own and also started a separate side business with partners (both are LLC but taxed as S corp if that matters) and I'm wondering what the best options are for that income.

The business with partners is most likely going to end up being very, very small amounts (like hundreds of dollars) of profit/distributions (if any at all) for the next couple years at least.

The business on my own, I'd expect to end up with maybe between $2k-$20k of profit/distributions annually for the foreseeable future. Yes, I know that is a large percentage difference, but it's just a business where I take advantage of opportunities that come up when they come up and are very inconsistent. My wife is not an owner and I'm not planning on having her be an employee. I feel like I've read something about being able to contribute to a retirement account for her since she's my spouse even though she won't be actually a part of the business. I'm guessing I've misunderstood that, but I'm confused.

So, with that information, what are the suggestions for what to do with any of that additional income? I've read all sorts of things about Simple IRA, SEP IRA, Solo 401k, etc. but everything I read seems to be geared towards people where those are their only options as a small business owner and no other job. Nothing seems to be directed towards someone in my situation where we're both maxing out current available tax advantaged accounts and looking for more options.

Thanks and please let me know if you need more information!

EDIT: We are also maxing out our HSA, in case anybody was going to suggest that as an option.

 

[Luck_Club]

Correct me if I'm wrong but after you contribute to your individual max your maxed.

 

[SkinsFan0521]

Correct me if I'm wrong but after you contribute to your individual max your maxed.

Hi, and thanks for the reply.

From what I've read, my employee contributions are maxed, but I can still contribute as an employer. But, I'm not clear on what percentage and if that percentage is before or after self-employment taxes are taken out.

But, again, I'm confused on the whole thing. Hence my post. haha

 

[brucethebroker]

Hi, and thanks for the reply.

From what I've read, my employee contributions are maxed, but I can still contribute as an employer. But, I'm not clear on what percentage and if that percentage is before or after self-employment taxes are taken out.

But, again, I'm confused on the whole thing. Hence my post. haha

Look into a SEP-then double check with your accountant. I have used that in the past.

 

[COcheesehead]

Hi, and thanks for the reply.

From what I've read, my employee contributions are maxed, but I can still contribute as an employer. But, I'm not clear on what percentage and if that percentage is before or after self-employment taxes are taken out.

But, again, I'm confused on the whole thing. Hence my post. haha

You are correct that you also have an employer contribution. I believe it is up to 25% of your total gross salary, but I would confirm that with your accountant.

 

[gauss]

If you employer does not offer a traditional 401k that will accept after-tax contributions (which can be rolled over to a Roth IRA), perhaps you could setup your own 401k that would allow this.

The section sec 415 limit for these type of plans allows on the order of $55,000/year to be contributed by an employee.

-gauss

 

[target2019]

For a sole proprietor, SEP-IRA is limited to 20% of your profit. It becomes an adjustment to income.
The SE tax is also calculated on profit, and flows to additional tax.
One-half of SE tax becomes an adjustment to income.
I have 401(k) as megacorp employee, and SEP-IRA for my sole proprietor business.