How much income do I need to set up a Solo-k?

To set up and fund a Solo-401k (or Solo-k) need only enough income to fulfill the minimum requirements of  the custodian you use. For example, say you have $1,000 of self-employment (SE) income from giving a speech or filling out surveys. You have maybe $100 of expenses (prorated tax prep fees, some mileage. and 1/2 related FICA taxes). You can set up a 401k with as little as $900 as long as your custodian will allow you to create a 401k for that amount. Once you have your 401k open, then you have the receptacle you need to roll over any Traditional IRAs (TIRAs), SIMPLE IRA, and SEP IRA balances – TAX FREE!

So what does it really matter if you have a tiny Solo-k? Here’s the real benefit:

  • If and when you leave your current job for another position, you will want to roll out your 401k/403b.
  • If you roll it out to an IRA, like most people do, you will pay pro-rata taxes on backdoor Roth IRA contributions.
  • But if you have a Solo-k, you can roll the 401k/403b at your old employer into your Solo-k and continue your backdoor Roth IRA contributions.

That’s why you want to set up a Solo-k at your first opportunity! You can keep your Solo-k active as long as you keep your side hustle open. In other words, even if you are not currently doing 1099 work, if you may earn 1099 income in the future, you do not need to roll your Solo-k out to an IRA or another retirement plan.

What is a Solo-401k?

Which is better: SEP or Solo-401k?

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