Reply to DH 401K Maxed Out, What about me?

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[quote=Anonymous][quote=Anonymous]A SEP-IRA is much simpler than a solo 401(k) but can have lower contribution limits (for the SEP it is 25% of income or $51000 whichever is less, for the solo 401k it is a combination of "employee" and "employer" contributions, which have different limits but also have a max potential of $51000).

But both a SEP and solo 401k are meant for self-employed people, not employees, so you'd have to decide if you are ok treating yourself as self-employed.[/quote]

If you make less than 200k from self employment the individual 401 is by far the better option. You have to have an FEIN, and you technically have to fill in a yearly form (but don't have to actually file it unless plan assets are over a threshold, I believe 1 million).

Also - you should be reporting this as schedule C income and paying self employment taxes (~15%, since you have to pay the employer and employee portions), otherwise this income will not count for social security purposes. You can't really put this anywhere else on the return, as the IRS will take issue with you putting any business income in the "other income" line. That is one they will audit you on and will assess the self employment taxes.

In theory your employer treating you as an employee would mean you don't pay the employer 7%, but in reality your comp would probably be adjusted to reflect that, so it would be a wash to you.[/quote]

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