Solo 401k (as part of my resale business)?

[stlcole]

I set up an S-Corp/LLC to manage my resale business and to accept designation of other significant income. The resale business is going rather well and the other significant income is .. well .. significant. I am over 50. And talking with my accounting, I believe I can contribute up to $56k to a Solo 401k.

My questions are a) are the better alternatives such as a SEP IRA than I should consider, and b) if the Solo 401k is the best, its there a go-to resource which helps get this done in a cost effective manner?

 

[Matt]

I set up an S-Corp/LLC to manage my resale business and to accept designation of other significant income. The resale business is going rather well and the other significant income is .. well .. significant. I am over 50. And talking with my accounting, I believe I can contribute up to $56k to a Solo 401k.

My questions are a) are the better alternatives such as a SEP IRA than I should consider, and b) if the Solo 401k is the best, its there a go-to resource which helps get this done in a cost effective manner?

How much annual profit?
Any other plans in place (from work etc)?

 

[stlcole]

I would expect $120,000 assigned to the S-Corp from payments received as a company board member, and estimate $60,000 to $100,000 from the resale business (an LLC which is owned/managed by the S-Corp). The 401k would be a solo 401k. I do not have any other source of W2 income besides the salary the $5,000 S-Corp pays me every month (for the purposes of generating payroll taxes and avoiding the self-employed payroll tax costs).

 

[Matt]

I would expect $120,000 assigned to the S-Corp from payments received as a company board member, and estimate $60,000 to $100,000 from the resale business (an LLC which is owned/managed by the S-Corp)

That might be a little convoluted. I wonder if you might hit some issues in the future around that - depends on whether passive income rules kick in on the board side. But the numbers are a good fit for a Solo k, providing we are talking profit.

I do not have any other source of W2 income besides the salary the $5,000 S-Corp pays me every month (for the purposes of generating payroll taxes and avoiding the self-employed payroll tax costs).

Generating payroll taxes is the self employment tax cost.

I'll write up the Solo K stuff shortly in a separate post since a few people are asking about it.

 

[stlcole]

Because S-Corp pays me w2 income and reports the rest of the income as K1 profits, (I believe) the net effect to me is that I incur payroll taxes on $60k of income only (rather on whatever the maximum amount might be). This net effect saves me several $1000s.

 

[Matt]

Because S-Corp pays me w2 income and reports the rest of the income as K1 profits, (I believe) the net effect to me is that I incur payroll taxes on $60k of income only (rather on whatever the maximum amount might be). This net effect saves me several $1000s.

The payroll taxes are paid on payroll. So if you W2 yourself, that is what you pay the payroll/self employment tax.

The order of things to look for:

• Deductions
• Distributions
• Salary (W2)

The distributions part can get complex, but that is the part where you are saving on the payroll/self employment tax.

So, you are correct that you'd save $1000s by being a S Corp, but it isn't from the W2.. in fact, you want to keep the W2 as low as possible, but the IRS wants a 'reasonable' amount of W2.

Deductions lower total income, then split the balance is a guideline.

 

[Bury]

Worth noting that Matt followed up this thread with a blog post here: https://saverocity.com/forum/threads/payroll-in-xero-with-a-solo-401-k.528399/