What retirement savings for self employed 1099 independent contractor are (or can be) pre-tax to reduce taxable income?

Update:

I have heard a lot about Solo 401k, when employed full time, 401k directly reduce taxable income, is it the same with Solo 401k?

8 Answers

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  • 1 month ago

    An individual traditional or Roth IRA.

    If you set your business up as a corporation with you as the sole employee, you can benefit even more by creating a Solo 401k. You, the W-2 employee of the company, can contribute as much as you want to the 401k out of your wages, up to the federal annual limit of $19,000 (more if you are 50 or over), and your business, which is the employer, can pay a match into your plan, out of business money, up to the federal limit on that. If you are under 50, the total that can be contributed in a year between the company and the employee is 100% of the employee's wages up to $56,000. Meaning you can put in your whole $19k as the employee and the business can put in up to $37k.

    Of course, the business also must take care of all tax withholding, federal, state and local as required, and the payroll tax.

    • curtisports2
      Lv 7
      1 month agoReport

      If you are a 1099 independent contractor, then you cannot have a Solo 401k unless you turn your business into a corporation and pay yourself W-2 wages as the only employee of the company that you own. I explained all of that.

  • 1 month ago

    Quite a few, actually.

    Personally, I use a SEPIRA for my Self-employment income.

    Note: Pretax retirement accounts only reduce Income taxes. They have no effect on Self-Employment taxes.

  • R P
    Lv 7
    1 month ago

    SEP IRA is the normal retirement account for self-employed folks

  • Anonymous
    1 month ago

    Yes, solo 401k is fine as long as you don't have employees.

    SIMPLE IRA is an option if you plan to hire an employee.

    Remember, investing in individual stocks in a taxable account has no annual contribution limits and the investments are tax-deferred in the sense that you are only taxed when you sell - and you're taxed at the lower long-term capital gains tax rate, not the ordinary income tax rate.

    Honestly, pre-tax IRAs are terrible as the retiring Boomers have discovered. You get your little reward now, but you get absolutely hammered with taxes, required minimum distributions and higher medicare premiums down the line.

    • Thank you, this is a one person 1099 employment. and I'm glad to hear that Solo 401k and IRA will reduce the taxable income directly. Apart from the Medicare and SS taxes

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  • 1 month ago

    SEP-IRA

    Solo-401K

    IRA

  • 1 month ago

    You can setup an IRA and I'd also consider a ROTH IRA as well...you should find yourself a good advisor. Ask someone you know who has money for a recommendation...

  • Judy
    Lv 7
    1 month ago

    IRA......................................................

  • 1 month ago

    If you have your own business, be sure to get all the deductions you're entitled too, like your health insurance premiums.

    May I suggest that if you have mnoey to the point where setting up a solo 401k makes a difference, that you do a Roth? As soon as Roth was offered, I put everything I could into it, and today, I'm glad that I did. Traditional is only an advantage when you are high income now, and low income when you retire. Seriously, why would someone plan to be low-income in retirement?

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