Table of Contents
Written by : Neda Devin
Current : 6343
Write a comment
Write a comment
here's the problem i'll take my take out it matt with a llc or a sole proprietor you're paying self-employment tax not good and whatever your net income here it's going to play in the calculation as to how much you can put in the 401k this year it's 19 500 plus 25 of your profit or your w-2 or your income well by the time you start running the numbers on this your self-employment tax is going to be through the roof we find it time and time again if you want to do a solo 401k and you got the money to do it nine times out of ten you're going to want to make the s election along the way now i don't know who's telling you an s corp is bad but i'm telling you in this scenario the the s corp 401k usually your money ahead so have someone help you run the numbers on that yeah and you can just add an s selection to the llc um and and totally fine but you don't have to again for solo k qualification purposes you can be a sole proprietorship you don't have to have an llc you could just be you know susan smith sole proprietorship and you'll get an ein under that and um you can go set up a solo 4 with kander susan smith sole proprietorship with that ein roll over old retirement plan money uh put new contributions in now the one difference though on anybody that's a sole proprietor whether you're just a sole proprietorship with an ein or you've got an llc that is a single member that flows down you file as a sole proprietorship the one difference is you can put in the 1905 per year that's for 2020 and 2021 on your self-employment income plus 20 of the self-employment on your when you're an s corp you're going to put more in you get to do 195 plus 25 percent of your w2 and so um you only get the 20 factor on the sole proprietorship or also even if you're just doing a partnership which we generally wouldn't recommend either but um but that's just a little technical rule on the company putting in money 20 in the sole proprietor or a partnership versus 25 for those in an s corp or c corp which we don't love as you probably know if you listen to mark at all we love the s corp so jim what you're going to want to do with your advisor is going to say under option a i'm a sole proprietor llc whatever you want to say sold prop llc and here's what my profit is that i expect in 2020 how much can i put in a 401k so you're gonna just do this simple how much can i contribute now that's question one q1 is how much can i put in question 2 is how much is my self-employment tax going to be then you're going to go over here to your same advisor on the whiteboard or we do this on the phone with you and go okay if i'm in s corp what's my profit going to be and as i do that and by the way jim you can retroactively become an s corp back to 1 120. so we can file an election we charge 200 bucks so now you're an s corp and you say okay what's my w-2 and what's my pass-through and you get the pass-through deduction as well and then you say now how much can i put in a 401k and what is my self-employment tax you're going to ask the same two questions this is what we knock out in at least a half hour to 40 minutes we're already there and you're gonna go huh i put the same amount in my 401k but i'm paying lower self-employment tax happens every time so jim run the numbers with your advisor
Thanks for your comment Kathleen Vorhees, have a nice day.
- Neda Devin, Staff Member
using an llc with a solo 401k hi this is adam bergman ire financial please subscribe to my channel if you haven't already like this video and leave a comment or question if you wish also don't forget to click the bell below to receive automatic notifications new videos so the solo 401k is the most popular retirement plan for the self-employed if you want to learn more about the solo 401k just click the link below and you can watch one of my many videos that i've done on the self-directed solo 401k so if you have a solo 401k and you're looking to make investments then using an llc could make a whole lot of sense so here's a couple reasons to consider if you want to make investments with a solo 401k number one an llc offers limited liability protection what that means is the llc protects all your assets surrounding the llc so if a creditor attacks your investment all the creditor can do is attack what's inside of the lc the creditor cannot tack with outside of the lc which gives the whole advantage of limited liability protection number two privacy anonymity if you set up an llc to make investments you can invest in the name of the llc and not in the name of your 401k thirdly control if you used a solo 401k through a custodian you'd have to go through that custodian each time you want to make an investment whereas with an llc you'll have checkbook control and as the trustee of the plan you'll be able to make a solo 401k investment simply by writing a check or executing a wire fourth you don't lose anything you gain limited liability protection you gain privacy you gain more control and an llc's tree is a pass-through entity so it doesn't have any entity level tax on a federal level it's basically a tax invisible so it gives you all the advantages of limited liability protection but also pass through tax treatment more control and privacy for real estate investors using an llc is very attractive limited liability protection as i mentioned also especially if you're doing a lot of activity whether it's flipping or just rental activity having control over that bank account and being able to facilitate your own investments saves a lot of time and costs if you're doing one-off investments like private equity hedge funds private businesses the llc is not a necessity but for real estate investors hard money investors investors that want more control investors that expect a lot of activity using an llc with your solo 401k could make a whole lot of sense
Thanks Waneta your participation is very much appreciated
- Neda Devin
About the author
I've studied institutional economics at United States Naval Academy in Annapolis and I am an expert in archival science. I usually feel cranky. My previous job was sales representatives (agricultural products) I held this position for 16 years, I love talking about cricket and acrylic painting. Huge fan of Nikola Tesla I practice judo and collect dolls.
Try Not to laugh !
Joke resides here...