Questions around 1099 income and retirement accounts

High W2 income as physician - able to max 457 contribution, employer contributes to 401a plan (not a match - straight contribution). These total $34000 in 2024. Employer amount increases in a year. No mega backdoor Roth options with workplace plan.
I max backdoor Roth IRA for wife (stay at home) and myself.
Max social security tax yearly

I will have at least few thousand $ of 1099 income this year. Hopefully more and almost certainly more in 2025 and later

My understanding is that I could set up a solo 401k (appears this is better than SEP IRA given backdoor Roths) and put up to 20% of my 1099 income in.
White Coat Investor Multiple 401 type accounts

Goal of doing this is to have more $ in some tax advantaged account instead of investing more into a brokerage account. This combination of accounts will allow more than standard individual contribution limits of $23000 in 2024.

My questions are around using a solo 401K.
- Would I have to set up an LLC (or some entity) and have an EIN to do a solo 401k? Much headache to maintain or yearly cost?
- Anyone have experience with this? Thoughts on $ amount that makes it feasible? Wouldn't do all this to get $5 in a solo 401k. Worth it if I can max it. In between amounts?
- Thoughts on Ascensus? $20/yr to have account. I generally like vanguard but they now use another party for Solo401k Vanguard Ascensus
- Anything I'm not thinking about?

Sorry if too wordy/long
Expect to bump for the weekday crew

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Posted by Sir Saint

1 post

Member since Jun 2010

5483 posts

Posted on 7/8/24 at 12:23 pm to Stateguy

I am a 1099 physician (no W2) so I have a little experience here.

You're correct to avoid SEP IRA if doing backdoor Roths every year.

With the relatively low amount of 1099 income compared to W2, it's probably not worthwhile to form an LLC. You do not need to set up an LLC to have a solo 401k. You may need an EIN to enroll in the solo 401k but you can easily get one in like 2 minutes online (you can just use your name "Stateguy MD" for the entity name).

There is no headache or cost to "maintain" this - assuming you never form an LLC. Once you have the EIN, that's it. No renewals or yearly fees.

Don't forget that you can put in up to 25% of net earnings as a "profit sharing" contribution that does not count against your 23k per year limit.

I use Fidelity for my solo 401k and it's fine. No set up fee or maintenance fees, etc. The only drawback is there is no auto-recurring EFT contribution option - you either have to make online payments 1 at a time or remit payments by snail mail with paper check. If your 1099 income fluctuates, this is actually preferable anyway since you'll have to adjust your contributions based on amount of 1099 income.

If/when that 1099 income gets up into the 10s of thousands, would highly advised working with a CPA on reducing your tax lability.

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