How to Maximize Contributions and Tax Deductions to a Solo 401(k)

Leading financial advisor Cary Stamp provides a quick lesson on how entrepreneurs such as attorneys and real estate agents with 1099 income can maximize contributions to what’s known as a Solo or Individual 401(k).




I’m Cary Stamp and this is a Principled Wealth Moment. Today, I’m going to explain to you how you can establish a retirement plan for your small business when you have no employees and put a bunch of money away for your retirement. And take a huge tax deduction for setting up this plan.

Let’s say that you’re an attorney or you’re a real estate agent, or you’re someone who has 1099 income and you’re not covered by another retirement plan. This is a great idea for you. Here’s how it works. You established what’s called a solo or an individual 401k account. So even as a sole entrepreneur, you’re eligible to set up this type of an account. It gets even better because if you want to, and there’s a good reason to, you can even put your spouse in this plan. But we’ll talk more about that maybe on an individual basis.

Here’s the deal. Every year you can contribute up to $19,000 of your personal income as a salary deferral to the plan. If you’re over age 50, you can contribute $25,000 per year as a salary deferral to the plan. In addition to that, you can make another contribution sometime before your tax filing deadline that brings the total contribution between you as the employee and your company, or your business as the employer, so that your total contribution could be as much as $56,000. And if you’re over 50, $62,000 for 2019.

What does that mean? Well, it means that if you’re in the 32% tax rate, you’re going to save almost $20,000 in income taxes by setting up a solo or an individual 401k plan for yourself. I’m Cary Stamp and this has been a Principled Wealth Moment.

Cary Stamp & Co, principled wealth management and financial planning, Jupiter, Florida.

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