Sep 401k or Solo 401k under LLC

[Dustin Peters]

I am curious about setting up a 401k under my LLC. Is it worth the time, money, tax advantage, etc to set one up. If so which makes more sense a Sep or a Solo 401k. Would it make more sense under an S-Corp, C-Corp etc Looking for info on what people have done and what works and what doesn't. Thanks.

[George Blower]

@Dustin Peters

If you are self-employed with no full-time employees (even though you have a separate w-2 job), you would be eligible to establish a self-directed Solo 401k.

You could then make contributions to the Solo 401k from your self-employment income (i.e. w-2 income when your business is taxed as an S-corporation, 1099-misc income if you are a sole proprietor).

If your plan allows for it, you can make pre-tax, Roth (or even additional voluntary after-tax) contributions.

Contributions can be made as both employee and employer contributions (since you wear both hats):

• The employee contribution limit is 100% of your w-2 wages up to $19,500 (or an additional $6,500 if you are 50 or older) provided that you are not making employee contributions to another plan (e.g. if you have a day job with a 401k plan). Note: These contributions may be made on a pre-tax or Roth (after-tax) basis.
• The employer contribution limit is 25% of your self-employment compensation. All employer contributions are pre-tax.
• The overall limit for 2020 is $57,000 (or $63,500 if you are 50 or older).