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Solo/Self-Employed 401k! A Dream Retirement Plan! (2022 Max= $67,500/year!) | Brad Rosley, CFP - YouTube
Channel: Brad Rosley
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hi this is Brad Rosley welcome to this
week's version of smart money today
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we're going to talk about self-employed
also known as solo 401k as a name
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implies these these are good for people
that are self-employed with the
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exception of being able to include your
spouse if he or she works in the same
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business so these are not for people
that have w2 full-time employees years
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ago I started my own business I start
off with what's called a SEP IRA SCP IRA
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as many self-employed people are
familiar with in the SEP IRA you're
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allowed to save a percentage of your
income from the employers standpoint
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into a retirement plan and these are
nice plans several years back a new
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option came across my desk that I jumped
on and it's called this solo or
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individual 401k first thing I liked
about it as most people will is that
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there's no cost to set it up or at least
very little cost if any so you can set
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up this program unlike a traditional
401k that many people are familiar with
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at larger companies those plans have a
lot of expenses that are charged back to
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the employer kind of behind the scenes
those expenses make it unattractive for
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a smaller employer to set up before 1k
but with the solo 401k there's virtually
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no expenses at all
there are also set up through brokerage
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companies you can invest your solo 401k
money in stocks bonds mutual funds
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exchange-traded funds CDs money markets
you name it so they're very flexible on
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allowing you to create your investment
portfolio let's suit your needs the real
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exciting part though is the amount of
money you can invest in these programs
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the amount is a percentage of what you
make is really extraordinarily unlike a
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SEP which is 20 or 25 percent of your
income the solo 401k as the name implies
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allows you to put away on a salary
deferral a 401k contribution dollar for
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dollar up to the first $18,000 of urine
for example with a SEP IRA if you could
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put away 25% of your income times let's
just say you had a side job and made 10
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grand
25% of that is obviously 2500 bucks
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however if you had a solo for 1k you
could put away all $10,000 of that
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income all tax-deductible the 401k
contribution limit for 2017 is $18,000
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so you could put away your first 18
grand tax deductable in your salary
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deferral if you happen to be over 50
you'll get the opportunity to put away
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another 5 grand and call it a catch-up
contribution that brings your 401k
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contribution up to $24,000 a year and
it's only going to go up in addition to
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that you still get to make that SEP IRA
contribution or the 20 or 25% depending
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on whether or not you're an S
corporation or e a sole proprietorship
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so let's take a couple examples they'll
put them on the screen here next to me
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let's say you made $50,000 this year as
your net income well if you're under 50
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you get away you get the opportunity to
put away 18 grand in the 401k plus
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another 25% 25% of 50,000 is 12,500 so
you get to put away 18,000 plus 12 5 or
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just thirty thousand five hundred
dollars tax deductable of your $50,000
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income that's sixty percent of your
income if you happen to be over age 50
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and another six grand on that at the
catch-up contribution which is 24
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thousand now for their 401k plus a 12
five or a total of 36 five that's a lot
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of money
36 five are your 50 grand you're not
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paying income tax on that saves you a
boatload in FICA and income tax I'll do
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one more example let's say you made a
hundred and fifty thousand dollars this
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year the same 401k contribution eighteen
thousand if you're under age 50 or up to
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twenty four thousand dollars if you're
50 year older plus the 25 percent if you
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have an S corp
that you can put away into the SAP 25
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percent times 150,000 along with the cap
on this plan is $60,000 total you're
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allowed to put in $60,000 and if you
have a in income of $150,000 or more in
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your solo 401k if you make I'm sorry if
you're under age 50 your cap is at fifty
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four thousand so that's where you'd be
either case it's a lot of money as a
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percentage of your income what happens
if you don't have that kind of money you
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don't have to make any contribution you
have a slow year or you don't have the
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funds available don't make a
contribution here is a good year go
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ahead and make a contribution it's very
flexible that way that's a very nice
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thing as a small business owner a lot of
times their cash flow might jump up and
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down year to year three other things the
factor one is you can make a Roth 401k
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contribution meaning you're using
after-tax money and the money comes out
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tax-free that's an option you can choose
to do with or without or for some of
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your contribution but not all on the
employee side the employer contribution
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is always tax deductible only second
thing you want to consider there's a
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1231 deadline to set the plan up you
have to have all the documents in before
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the end of the calendar year the good
news is the deadline to make a
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contribution is not until April 15th of
that year I should say on the file in
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here your texture so have the plan set
up by 1231 and then you have to April
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15th of the following year to make your
contribution in any case always always
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always check with your tax preparer to
make sure you're following the rules and
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guidelines I've written about this in a
blog post I have this in other videos
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available on our YouTube channel so
please check them out and subscribe to
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both of them so you'll stay in the loop
and get future posts when they come out
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thanks for listening
have a great day
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