401k plans used to be complex and costly and mostly implemented by more mature companies. You can now help your self employed clients save big on taxes at a very low administrative cost.
The problem with SEP IRA is that it only allows contribution about 18.6% of net earnings from self-employment and to max out the contribution you’ll have to net a lot of income.
A 401k plan has two components.
Make annual salary deferrals up to $22,500 in 2023 ($20,500 in 2022, $19,500 in 2021 and in 2020; $19,000 in 2019), plus an additional $7,500 in 2023 ($6,500 in 2022, in 2021 and in 2020 and $6,000 in 2015 - 2019) if you're 50 or older. This contribution can be 100% of their income.
Contribute up to an additional 18.6% of your net earnings from self-employment.
Total contributions of the two is $66,000, $73,500 for people 50 or older, for 2023 ($61,000 for 2022; $58,000 for 2021; $57,000 for 2020 and $56,000 for 2019)
Spouses working in the same business and filing together can both participate in the plan. Regular and Roth version available.
With a 401k a client can make a massive tax-deferred contribution while maintaining a low taxable income. Win-win!
The ideal candidates for a 401k plan are
Self-employed persons or spouses working in the same business.
New business with high but unpredictable income.
Want a low-cost plan with flexibility and no funding obligations.
The Wealth Cairn Difference
CFP and Fiduciary Advisors
White glove service end-to-end.
24-hour response time, any day of the year.
No 800 numbers, no holding on the phone.
Docusign and cashless transactions with independent custodians.
Audited returns and total transparency.
Wealth Cairn - An Investor Coaching Company
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hello@wealthcairn.com
References: https://www.irs.gov/retirement-plans/retirement-plans-for-self-employed-people
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