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My favorite thing to do is tax shelter! With $45k/mo income self employed, you can contribute to a self directed Roth 401k as both the employee and the employe

My favorite thing to do is tax shelter! With $45k/mo income self employed, you can contribute to a self directed Roth 401k as both the employee and the employer. This boosts your maximum 2022 annual contribution from $20,500 to $60,500. You can only contribute with 20% of the revenue, so you need around $300,000 to pump the max of $60,500 into one of these. It is slightly lower if you do this through an S-Corp. So everyone is correct that you need a CPA, now that you can afford to have some real fun. There are some things that are almost impossible to do alone, or actually impossible. Unlike corporate 401ks, you can invest the money almost any way you want - from a passive vanguard fund to the sketchiest and most exciting crypto assets - all the money grows tax free in there and is tax free upon withdrawal when you reach certain age thresholds. Your work is just beginning! - CPA versed in personal, business and retirement accounts - 401k Compliance company - Payroll company to process W-2’s - 401k Bank account - 401k Traditional brokerage - 401k Crypto brokerage - Separate wallets to never intermingle assets I think this is achievable for ~$1200 first year with ~$900 annual fees. Split between the Compliance company, payroll company and cpa. Eventually you’ll have enough in those to invest in private equity funds If you’re worried about making money for the sake of it, you can always set a few foundations or charities as the beneficiary of the 401k plan, in event that you die. Or just pay a boatload in taxes for not making the transactions that Congress prescribed. Once you get that on autopilot, then you can work on ensuring current year tax deductions. Are you getting the research tax credit due to your US-based (?) software engineer? For example. Maybe relevant for you, maybe not. CPA.

brightball 5y ago
This is certainly the most interesting answer.
nodesocket 5y ago
Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.
- celestialcheese 5y ago
  Search Mega Backdoor Roth [1] 1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/ https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...
  - qzw 5y ago
    Yes, but for anyone considering this, keep in mind that any funds converted to Roth are subject to taxation now, less the Roth contribution limit (varying by your income). So you're picking between tax deferral now versus tax-free distributions later. There's no way to get both.
    - vmception 5y ago
      But also note that its not a penalty, just normal taxation added to your AGI or MAGI, so you can reduce or nullify that current year tax by having lots of expenses (borrowing against assets and using them for deductible expenses, donating appreciated assets to charity etc) This can be done strategically, such as one year where you need traditional pretax 401k / IRA tax deductions you just contribute to those. And in a future year you convert those to Roth and report the income that you reduce with expenses Talk with a CPA about it to make it make sense. People act like a random person on the internet mentioning something about legal/taxes is the most heretical thing possible, but the point is to point you in the right direction and bring up the same topic with licensed professionals. Lawyers and CPAs aren't going to procedurally generate all possibilities to get you the best result, you have to inspire them to look in particular directions and verify along with implement if it checks out.
- vmception 5y ago
  Roth 401k contributions are subject to the same traditional 401k contribution limits. I think you are not understanding. Where does this conflicting information come from? Do note that there is a super confusing "after tax 401k" as well as a "roth 401k" which is also after tax but different. Search engines have trouble with this, and it also confuses gurus. But neither of these reduce a 401k contribution down to $5k, and the roth 401k is all taxed now and tax free later exactly like a roth ira with 1,000% higher contribution limits. Sources for my world: https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estates/2019/02/25/roth-401-k-vs-after-tax-401-k https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estate... My CPA https://www.nerdwallet.com/article/investing/roth-401k https://www.nerdwallet.com/article/investing/roth-401k https://www.irs.gov/retirement-plans/roth-comparison-chart https://www.irs.gov/retirement-plans/roth-comparison-chart (only details the employee contribution here)

brightball 5y ago

This is certainly the most interesting answer.

nodesocket 5y ago

Maybe I am not understanding but even with a solo 401k you can’t contribute it all into the roth part. Only like $5k. The rest goes into standard retirement account which is tax deferred.

celestialcheese 5y ago
Search Mega Backdoor Roth [1] 1 - https://www.mysolo401k.net/solo-401k/mega-back-door-roth-using-solo-401k-plan/ https://www.mysolo401k.net/solo-401k/mega-back-door-roth-usi...
- qzw 5y ago
  Yes, but for anyone considering this, keep in mind that any funds converted to Roth are subject to taxation now, less the Roth contribution limit (varying by your income). So you're picking between tax deferral now versus tax-free distributions later. There's no way to get both.
  - vmception 5y ago
    But also note that its not a penalty, just normal taxation added to your AGI or MAGI, so you can reduce or nullify that current year tax by having lots of expenses (borrowing against assets and using them for deductible expenses, donating appreciated assets to charity etc) This can be done strategically, such as one year where you need traditional pretax 401k / IRA tax deductions you just contribute to those. And in a future year you convert those to Roth and report the income that you reduce with expenses Talk with a CPA about it to make it make sense. People act like a random person on the internet mentioning something about legal/taxes is the most heretical thing possible, but the point is to point you in the right direction and bring up the same topic with licensed professionals. Lawyers and CPAs aren't going to procedurally generate all possibilities to get you the best result, you have to inspire them to look in particular directions and verify along with implement if it checks out.
vmception 5y ago
Roth 401k contributions are subject to the same traditional 401k contribution limits. I think you are not understanding. Where does this conflicting information come from? Do note that there is a super confusing "after tax 401k" as well as a "roth 401k" which is also after tax but different. Search engines have trouble with this, and it also confuses gurus. But neither of these reduce a 401k contribution down to $5k, and the roth 401k is all taxed now and tax free later exactly like a roth ira with 1,000% higher contribution limits. Sources for my world: https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estates/2019/02/25/roth-401-k-vs-after-tax-401-k https://www.nixonpeabody.com/en/ideas/blog/trusts-and-estate... My CPA https://www.nerdwallet.com/article/investing/roth-401k https://www.nerdwallet.com/article/investing/roth-401k https://www.irs.gov/retirement-plans/roth-comparison-chart https://www.irs.gov/retirement-plans/roth-comparison-chart (only details the employee contribution here)