The Power Of a Solo 401K | What You Need To Know

so we're going to hit when do I get a solo 401K how should I get it how much can I fund it what are the deadlines we're going to freaking nail it because this is the time of year to deal with it people you'd be shocked how many clients I we meet with that are 55 60 years old and they are scared to death this is one of the Tax Strategies clients come just like I made a ton of money today or this year I'm worried about my taxes how can I reduce those if you don't have any full-time or part-time employees on a W-2 and you're making money in a small business you freaking are a perfect candidate for soul okay welcome everyone to the Main Street business podcast with Matt Sorensen and Mark Kohler stoked to be here today is that an 80s or a 90s throwback let me come out of the gate with this first point if some of you have employees not all is not lost and what I mean by that is you've had a full-time employee for at least one year or you've had part-time employees for at least three years yeah now that's 500 hours we ran into this actually the self-directed IRA summit someone had a part-time employee but like yeah they're like not even five hours a week you know it's like oh they're gonna be under 500 hours for the year so if it's a part-timer that's 500 or more you got to worry about them yeah and that means the same employee so let's say you've had a lot of turnover and you've never had a part-time employee stay with you more than a year and a half or two you're fine for a solo K yeah okay this employee topic you want to get right out of the gate here because some of you are like well I have employees but I don't do I qualify for a solo so let's just is that all right we hit this yeah we got to hit this this is the big qualification so in fact I'm going to start here if you don't have any full-time or part-time employees on a W-2 and you're making money in a small business you freaking are a perfect candidate for soul okay including those of you that have just rental property income we have what we call the side door 401K we'll hit that in a moment but if you have no employees green light yeah now but if you have part-time employees do you want to describe how you would look at that you know the turnover how long and the hours Let's be clear about it yeah so the old rule was you only need to worry about full-time employees which is about 20 hours a week and if someone was a full-time employee that worked for you for a year longer at least 20 hours a week you couldn't do a solo okay because you had employees solo case are this product of awesome 401K plans for solopreneurs individual business owners their partners and spouses can be included but they've created these plans assuming you don't have other employees and so that was the requirement as well if someone worked for you at least 20 hours or more a week and it was a year you can't do the solo K anymore the new rule still has that but also said and part-time employees that work for you three years well part-time means 500 hours or more over a three year each year for three years that same employee if that person hits that and you're still employing them that's now going to disqualify by you from a solo case which means the first strategy here is if you've had an employee part-time with you for two years and 364 days it's time to fire them yeah see uh because I have a retirement party for him yep you've graduated you're moving on yeah okay so now why we so that's right out of the gate now there is a Wonderful Plan called The Safe Harbor plan for those of you that do have employees and you can put a heck of a lot of money away on top of a Roth IRA we love those plans but the deadline to start them for this year was October 1st it's long gone right we're a month past that so the solo 401k will give you some deadlines for that we're still fine but if you want to do a 401k and you have this part-time or full-time employee issue you want to tackle this topic in January get it in place for next year the deadline is October 1st okay yeah all right let me let me hit who you might be where this fits we set up a ton of solo case for real estate agents Real Estate Investors Consultants people have an online store if you're making good money and you're self-employed and you're like man I don't have the corporate 401K I've been told I can do an IRA but that's six grand I've heard of sep IRAs maybe and maybe I've been doing one of those every once in a while guys focus in the number one retirement account strategy is a solo 401K you've got to be doing this this is the best structure and strategy you can put more money in any other plan you have more options on how to do it you can take loans from it this is going to be the one you should focus on okay now I'll throw in this caveat I was just with my daughter last week who's a realtor and yesterday I was speaking at Club wealth give them a shout out they it was a wonderful group in Orange County 450 Realtors Michael Ontario Helix and Club wealth doing a great job educating Realtors around the country and there's Realtors out there that don't even have an IRA so so let's back up and say this too if you're just starting to save you're finally like okay I got the bug I'm making a little bit more money I know I need to be better at this I've paid off my credit card debt I'm ready to start saving you're going to start with the IRA and of course in our opinion the Roth IRA you may even start funding your health savings account I just so I want to be clear about this Matt and I are always first fund your Roth your health savings account maybe you're doing some college savings accounts for your kids you're saving up for a new home you're buying a rental let's hit those base hits but once you say man I'm having a hell of a year I'm making 200 Grand 300 400 500 or more and you're like I could do a little bit more I could do it that's when the solo K hits too so don't forget the basics that are easy you can open up a Roth IRA account right now at direct ira.com we were doing it a lunch yesterday at the conference for realtors at Club wealth they're like I just need a Roth I have I'm not and you can do 500 a month that's about the average you want to think about that if you can save more than 500 a month you're a good candidate for a solo too okay awesome all right okay so that brings us to what do you want to hit first like now after okay what's next I mean this is how about first those were first yeah what's next well we talked about qualifying okay you've got to be self-employed no employees remember those are the two two points the next is how do I get the money in like how do I get the money in but actually you know what let me take a step back I wanted to step back to it I want to kind of do a little why oh you want to do a why okay I was gonna say what you got to do before you get the money in you have to have the plan set up but yeah yeah yeah I want to do this why too I I just feel it for a moment let me take 30 seconds I'll just say this if you're just starting again to catch the bug of saving people you'd be shocked how many clients I we meet with that are 55 60 years old and they are scared to death they have no retirement at all and you know what I mean we're self-employed yes they are this perfect they put all their money back in the business yes they didn't have the company 401K that just came out of their paycheck that forced them to say yeah and they were told by their accountant for years well you have employees you can't do anything yeah and so they were they just gave up and they were told you make too much money to do a Roth or an IRA so they were like what the hell do I do I have no choice but to put money in my business we're here to clear up those misconceptions um so there is hope so whether you're 20 years old or 60 years old you can still save you still should save and I have clients that are in their 70s with rental properties funding a side door 401K you can still be building that Roth 401k uh you're never too old to save I love Dave Ramsey for this he's just a huge advocate for living within your means and saving so just two I had a realtor come up to me and he goes you haven't done this if he's listening he knows who he is he came to me right after my breakout session and he's like yeah but Mark I don't know about a 401k I mean I can't touch the money till I'm 59 and a half and I go that's right and he was like I kind of shook him for him and I literally grabbed him by the shoulders dude you know how many people that are 59 and a half that are are dying because they don't have some savings and he's like oh you're right and I go buy your rentals individually and then buy them inside your 401k too yeah and he's like okay he goes I needed to hear that yeah so yeah and I want to hit another topic on this too that we we left out actually you might have a 401k you might have a day job and you can also do a solo K if you have a side hustle or small business we set up lots of solo case for people in that scenario that are like all right I'm working on my company 401K at Dunder Mifflin whatever but I happen to own shrut Farms you know Dwight schrew a little throwback to the office and schroote Farms solopreneur can do his own solo okay you can be doing the same thing that you can put more money away you're not locked into the crappy investments in the day job 401K so also those who got the side hustle that may even have a 401k at your day job think of the this uh solo K also as an option for your side hustle okay I think it's time to talk matching out I think um when Matt was going to get into the steps and the numbers and the deadlines I I and I'm glad that we're stopping for a moment let's stick with this concept stuff I think if all of you know where the buckets are and why I'm doing this and the reason to be doing it then it's going to be easy to go oh the Dead headlines here and here's where I go to set it up and we we have a special this month starting November 1st we're going to make it easier for you so it's done before year end you're going to love this okay I want to go to the Whiteboard so if some of you are again on uh the podcast and not on YouTube uh try to get over there it's not the end of the world but what I just am creating here is our trifecta this is the trifecta to make sense of life and finances and tax planning so down here at the bottom of your Trifecta is your revocable living trust in your 1040. and then over on your left are your Ops operations and over on your right are your assets okay so over here on your op side kind of over in the corner we're going to put day job and see this is very common if you're single you might have a day job and a side hustle or you might be married and your spouse has the day job and you have the the entrepreneurship business or the small business so you could have a combination of this but I love what Matt I just want to diagram this so let's say you've got a side hustle it could be a sole prop it could be an LLC it could be a full-on S Corporation and so if you're watching on the left side I've got this little day job box up above and then I've got your three different business structures that you might be choosing from for your for your small business okay so here's the power of what Matt just talked about on the day job most companies are going to say okay we're going to fund your 401k and match up to a certain percentage of your payroll if you'll put in some money so let's say they're doing a four percent match and you make a hundred grand that's four thousand dollars or let's say you make 50 Grand a year and they do a four percent match that's two grand a year so if you put in two grand they'll match two grand you just doubled your money that's that's pretty good investing you don't have to you don't have to be rocket science to choose the right stock or the right mutual fund or whatever you can say so what I call is matching out if you do have a side Hustle I want to see you play in the 401K at work put in your two grand or your four grand in that example whatever they're going to match and get the 2x get it doubled get it doubled now that's just step one then what I like to do is come back and go all right now are you funding your Roth IRA your individual Roth did you put your six grand or seven Grand in that are you married did you match out both of them do you have um uh an HSA did you fund that so you've got these little buckets over here you want to not ignore then you say okay I did my two grand at the 401K I did my Roth IRAs I can do more and I want to be able to self-direct it see if you put it in your day job you're kind of stuck I mean Matt that's why I like the solo case yeah is because that's or some people go well I just put it all in my work 401K really that's where you want it yeah I mean if that's your only option maybe I like that but if you got options you got a you got this side hustle okay shrute Farms whatever your side hustle may be no no we're getting the matching out we're getting the hell out of there the average fees on a 401K plan in a small business are one and a half percent you don't even know that right you got a hundred thousand four when you're paying 1500 bucks for every penny are dropping in there and you got crappy investment options right you're gonna buy a mutual fund or some Target date fund a lot of company 401K plans just aren't that flexible and it's so but the solo k a lot more flexible okay you can self-direct you can do real estate you can invest in notes and crypto and all these things that people want to do you those are options in your soul okay plus you're going to be in control of it you're going to have charge of it yeah you're not locked in with the company 401K that's why I like doing the matching out get the double double your money at work then and I'm going to put this for those that are watching on YouTube I'm going to give you the steps now this everybody's facts patterns are a little different I get that but I'm going to say in general this is not a bad line of attack so number one you do your matching out so I just put a number one up by the company 401K get your match get out then go down here and I hate to do this it pains me but I'm going to put a number two by the Roth IRA because I want to put it by the HSA but I'll put it by the Roth IRA thank you but a close number three in in some situations I'd even go number two on this we're going to debate that all day long is we're going to fund our HSA if you can so if you have a health savings account you've got a Roth we're going to go number one matching out number two Roth number three HSA if you're married you're doing 2x on all this you're going to have a you're going to do your Roth times too to say no yeah the HS well you do the family you do the family amount which is double the amount and so then number four you go to your solo 401k and you say now I can put the rest in there and this probably is a good that's number four I'm going to go back to the solo and then you may go back to the company 401K that's okay there's some other options that um you might go to but there's the one two three four and maybe it's a good time to bring up dollar amounts why are we doing what are what's our limit can I have two 401ks apps freaking literally okay but but you can't make you can't max out both so there's a total contribution limit of how much you can put in a 401k which by the way in 2022 is 61 000 total that's a total amount you can get in and we're going to get into the total numbers 20 500 is the employee contribution for 2022 20 500. um and then 22 500 is uh employee contribution for 2023. so but basically think of it this way I can have 61 000 a year in the sole okay for me if I got a spouse that works in the business they can do 61 000. now if I had the day job 401K that I put in you know four grand total I'm subtracting that from that 61. so so I got what's left you know that's only four thousand was that fifty seven thousand now I could put in my solo so don't think you can max out your day job 401k and your solo so here's be an example for those watching on YouTube I did the under age 50 you can put 50 20 500 if you're 50 and older 27 000 in that in the totality of all your 401ks so let's go back to our example where you're doing a two thousand dollar match at work well if you're under age 50 that means you're going to put your 2000 in at work that comes off your twenty thousand five hundred you get your match that's cool but I've got 18 500 left over I can put that in to my work 401k or my solo and you say okay I'll go put that 18 500 in my solo and so this you have to start doing math on how much money are you making in your business and you're doing this really because you've had a good year with your side hustle you've got your day job killing it your side hustle's killing it again maybe you're married and your family business is doing well and so now you're going to start looking at this combination and this builds upon a theory that we've been talking about for years the mega backdoor Roth so what you're trying to do is figure out how much can I put away not everybody can put away 40 50 Grand or more some of you are sitting here going guys I'm going to be happy if I can save 10 grand this year great yeah well we got a plan for you but if you really are having that kick butt year and you want to put away 30 40 50 60 70 or more that's where this planning really starts to get technical yeah let me back up for everyone too for a second because let's say you don't have the day job okay I just want to talk to you you're 100 self-employed okay you're making good money you're like guys I've been doing the Roth IRA I'm high income so I'm having to do the back door Roth I'm doing my HSA I got no company 401K to play with I want to start saving all right let's let's talk about the solo okay remember we said you for 2022 you can put a total of 61 Grand in there that's on top of the Roth IRA and the HSA okay that's not those numbers aren't getting affect it I can do 61 000. now I want to go through the numbers on how that works okay okay all right let me hit the let me hit the numbers on how this works there's two ways you contribute into a solo 401k now the solo 401K by the way is a plan you set up you get a consult in the law firm we do these at kqs lawyers every day we have a special right now going on but you have to have the plan document set up the company in the example here Mark has adopts the 401K for the benefit of its employee which happens to be you because you're such an awesome employee but now the company is going to basically be putting the money in just like if you got a day job or you've ever had a job with a 401k the company throws some money in and you throw some money in as an employee we're doing the same thing in the solo okay we have employee contributions and employer contributions okay I like to say this a solo 401K is like a honeycomb and you've got these different little cells and you can fill them up with Roth your money the company match money you might convert some to Roth you might have a spouse and you start building their cells let's worry about Roth's second though yeah we will talk about contributions in and then how you want yeah but I was just saying you know they're think of them like a honeycomb because it's not one account per se yeah there's going to be some accounting to track your contributions the match what are you converting or do you ever are you married or whatever so anyway so you have the solo 401K I've kind of diagrammed a little S corporation on the left here's you and you're going to get a W-2 let's say let's say you made 150 Grand gross in your S Corp gross and you took a 50 000 W-2 okay so I have a hundred and fifty thousand gross income in my S Corp I took 50 000 in write-offs I have a net of a hundred and I'm going to do a 50 50 split that's fine and I'm going to put that in red and I'm going to um take 50 000 in a W-2 now that's a great strategy I saved on FICA there's a whole principle over here we're going to talk about don't do a sep for this reason but um so I saved on FICA I got a fifty thousand dollar W-2 correct now the first thing is contributions are based on your W-2 and an S corp not your K1 it's just your W-2 we're focused on so the employee contribution you get to put in dollar for dollar based on what you made so if I made twenty thousand five hundred essentially on my W-2 I can put in 20 500 as employee contribution if I made 100 000 on my W-2 my employee contribution could only be twenty thousand five hundred if I made ten thousand dollars on my W-2 my employee contribution could be ten thousand dollars so here I've got fifty I've got enough I can max out the employee contribution of twenty thousand five hundred okay okay so we're gonna that's the employee contribution I put in that's and we'll get to that Roth and traditional don't worry we'll come back to that but you can be one or the other you can pick but I got 20 500 in now on top of that plus since I'm such an awesome employee I'm gonna do a match and I'm going to match it the maximum amount the IRS allows by law which is 25 of your payroll of your payrolls that W2 of 50 I get to put in 20 000 sorry 25 of that which is 12 500. okay so I add that up I am now at thirty three thousand dollars wow yeah now for some people you're like that's plenty I really only made 100 Grand this year I'm saving one third of it in my 401k and I might have already done my rothma HSA I'm not even like interested yeah I might even do 10 or 15 of this we're just showing the max okay and the easy thing is just through the employee contribution that's the easy one to throw in worry about the max when you're trying to get more in and we got more strategies by the way to get more in on less W2 but we're just showing the easy first calculation to think about and so in this example I like what Matt just alluded to even before you go down this path you've maxed out your individual Roth and maybe an HSA and if you have kids you're saving for college maybe even a Coverdale so your hidden base hits with the just the basic plans but now you're saying I'm going to put more away so you do the solo and another side note just for those out there you go well I make too much money to do a Roth please go to our podcast on what we call the back door Roth you can just easily Google backdoor Roth Kohler backdoor Ross Sorensen and we will we've got great videos and all sorts of things on there um on that topic okay um now yeah a lot of times people say okay I'm having a better year instead of making 150 I did 250. I need to shelter some more money uh I'm going to give you a technical tip here don't Peg your salary for the 401K first Peg your salary as to what should my minimum salary be to keep the IRS happy under my S Corp rules now let me repeat that many of you already know I do the Kohler payroll Matrix to help business owners we've been doing in our firm for years set up an S corp and Peg their payroll to save on the f word FICA find what that number is first then calculate what would be my maximum 401k at that point you may discover oh that's perfect that's about what I wanted to do and if you're married we haven't even went there yet so we've got so do that first and then you can say I want to do more because if you want to do more we're going to have to probably play with your payroll and we have to be careful there because the more payroll we do the more FICA we pay but then we can do more with the 401K and there's some sweet spots there too yeah yeah and let me just say if you're you can also be doing a sole proprietorship or general partnership and have a solo okay if you're a sole prop it's the same rules 20 500 employee contribution we're looking at your net income on Schedule C but then the match is 20 of your net income okay they don't let you do 25 on a sole prop you're only doing 20 so sole props just know that you can still do a solo can a soul prop if you're an LLC and like I don't make it up for the S Corp or I just haven't gotten to that yet it's okay you can still do a solo k and a sole prop okay I want to give you an important warning here with all the searching and research when you use the word sweet spot or even backdoor make sure you're putting in the names Kohler and Sorensen in those searches because or how about Ira too yeah yeah you know just be careful you know uh your company laptop you know you may want to be careful on your search engine there okay go into incognito mode if you need to all right now let's throw in let's say you've done the math you're like okay my salaries where it should be I don't want to take any more FICA um Roth HSA Coverdale got it guys and for those out there that are married we'll say well should I put my spouse on payroll that was a question I got yesterday there's only two times I want you to put your spouse on payroll well I'm gonna do three okay three though three times you might put your spouse on payroll is number one they're actually working in their business they're in the business there's no way around it maybe they're a realtor licensed realtor with you they're a licensed physician they're a lawyer a dentist an engineer with you they're Consulting with you they're not just on the board of advisors and helping out on the site they're literally working with you when that happens the IRS is going to require they take a salary so that's option one option two when you want to pay your spouse or when you would pay your spouse is you want to handle some medical expenses you want to try to write off some medical expenses and you can do it through your spouse in a subsidiary strategy that we use what's called as the HRA or 105 plan we've got shows on that third reason you'd ever put your spouse other than that you can just give your spouse money just take a draw and give your spouse money but if you the only third reason you'd ever put them on a W-2 would be so they could do a 401k because they got to have a W-2 to play in the 401K now they can still do the Roth they can still play with you in the HSA and the coverdales but if you want to help double down on these numbers you're going to have to give them a W-2 so that's where another Sweet Spot comes in yeah and this is something at year end for people if this is one of the Tax Strategies clients come just like I made a ton of money today or this year I'm worried about my taxes how can I reduce those okay we can do traditional contributions in the solo okay for you and if you made a lot of money and your spouse is in the business let's add them to payroll here in fourth quarter before your end and we can make contributions off of them as well now we're talking we're getting over a hundred grand 120 Grand between the two of you that could be a tax deduction that's now getting you in a tax deferred savings vehicle where this 401K money is growing now we love Roth and I want to come to that in a moment choosing Roth because it grows and comes out tax-free but just for those of you that are like at your end here you've had a great year or you're worried about your tax bill you want to go traditional if it's you you're looking at 60 Grand you could do again you're high income you're probably gonna be able to Max it out or if you want to add your spouse and if they're in the business we could double that 120. that's a awesome strategy to start whittling down your tax bills yeah now this is a technical point but you'll say okay I'm going to put my spouse on payroll how much should I pay him or her and if they're going to do the 401K you you again want to start with how much can I do and if you say I want to do as much as I can without paying too much in FICA and that's a sweet spot on this spouse payroll scenario so let me careful talking about sweet spots I know I know yeah PG-13 today all right okay so um you really want to study this because it's not an area that you want to skimp on you know this is this keeps your marriage together it really what else is 401k to be satisfied yeah we do we do it's there's a sweet satisfaction here okay it's a gift that gives okay now all right so when it comes to pay no what can if they're under age 50 your spouse can do 20 500. so you're like oh I'll give them a payroll twenty thousand five hundred no you have to gross it up for the FICA amount so when you gross it up that's actually twenty two thousand one hundred and ninety eight dollars so I'm gonna pay the spouse on the W-2 and the gross payroll box number one on the w-22198 because when you take out FICA that leaves a net paycheck of twenty thousand five hundred boom we go to box 12 drop that into the 401K and they're going to use you're going to use code AA so you're that's that's a Roth contribution on W2 form so for those out there that are listeners that are we have a lot of CPAs that listen that's what you're doing is you're putting that on the W-2 and showing where it's going then you say oh well I got to do a company match well oh well 25 of 22 198 is 5549 I've got my little spreadsheet up here so oh the IRS says hey if you're going to have a company match for a total contribution of 20 25 it'll be twenty six thousand forty nine dollars you've got to take enough payroll and FICA wages to get the 26 000 49 so the payroll ends up being around 29 300 and you get this kind of spot where payroll is right where it's supposed to be now one of my other attorneys was saying no payroll is twenty seven thousand three hundred anyway It's Tricky so you're gonna back into that payroll amount um to get the perfect contribution because we want to pay the least amount of FICA okay all right let's hit um Roth because I want to talk about how you can do Roth remember if you're chasing tax deductions just put them in as traditional you're getting a tax deduction on the W-2 it reduces your taxable amount on the W-2 on the employer contribution it becomes an expense of the business so that's basically tax deductions all right now if you're like hey guys I love the idea of tax sections but I actually love the Roth account more which I I'm in that camp because I want this account to grow and come out totally tax-free at retirement I'm not going to get tax deductions today remember a Roth 401k which you can do on a solo you can have a Roth account you can have traditional account you can do both you can do it mix it up a little bit if you want to but the Roth account on the employee on the 20 500 that can be Roth from the get-go you just say it's Roth It's Roth you don't get a tax deduction 20 500 went in is Roth Now the company match here is where it gets dicey the company match has to be traditional dollars because the company expenses it now on day two you can convert it to Roth and some people just do it that way that's one easy way to do it I put let's say that 50 000 example the 20 the 12 500 went in as traditional dollars and on day two I converted it to Roth that's one way to do it there's multiple ways here I just want to give you option one now I effectively took a tax deduction and do it a conversion which made me pick it up as income which washes out no tax deduction um but now I've got that thirty thousand what do we have thirty thousand five hundred now uh or thirty two thousand thirty three thousand total of Roth dollars off 50 Grand now that might be enough there's other options here there's the mega backdoor Roth which I think you're teeing up here on the Whiteboard yeah and and I think if you're watching on the Whiteboard I've created uh and for those not being able to see it on the Whiteboard I've created a cylinder and this cylinder of power this is going to be sweet is it I always think I like He-Man when you say that the cylinder of power thank you again in my head there's something like the something of power oh my gosh I love it so here we have I've created three colors the first color is black and that is a Roth IRA that's just your Roth IRA down at the bottom that's step one and you can do again I'm going to do under age 50 in this example so that's six grand then you can do your employee contribution in Roth which is that and we'll put that in red and that's twenty thousand five hundred and then the green I've made here is going to be your company match so the company matches here and that's going to vary based on your payroll level because remember we're going to take our minimum payroll based on what the IRS says then we get into a fourth color and because we just want to be technical here and blow your guys's mind is there's this at the very beginning Matt set an important point you can get up to 61 000 in your 401k piece and then add the six on it with your Roth you've now put a total of sixty seven thousand dollars in Roth in one year now if you're watching you're going well where's Waldo how did you go from twenty thousand five hundred plus a company match there's a difference there typically going to be around 40 you know I'm going to say 30 to 40 000. this little 30 to 40 000 realm where does that come from um there's different ways to tackle it uh but what do you like to call this to keep life simple for the entrepreneur well so remember if you can do 61 000 total and we know we can do twenty thousand five hundred out of the gate that means we've got forty thousand five hundred left to fill well minus whatever the match was because we don't know what that is right so you got 40 500 to fill yeah you can do that with the match if you want or you can and then and then you can do what's called an after-tax employee contribution or you could just do full-blown after tax employee contribution if you know you're gonna go Roth on the on this whole thing you're a Roth person you're into it like I'm all Roth I just say just go after tax just don't even worry about the company match just do your twenty thousand five hundred and Roth employee under the other forty thousand five hundred in after tax employee contribution that you can convert right to Roth you can even roll it out to a Roth IRA if you wanted yep I love it now on that you would have had to have made at least 61 000 to do that yeah and the payroll level for that is for those techies out there sixty six thousand fifty three dollars so as long as you have payroll of at least sixty six thousand fifty three dollars and you have the wherewithal because you have other sources of income and you're like I want to throw down I want the biggest Roth I can get this year in totality it would be a sixty seven thousand dollar Roth 61 in the 401K Roth six on the side total of 67. will your paycheck in your S Corp would be 66053 now I I'd like what Matt's saying is that figure out early on if this is going to be all Roth and and just make sure you really uh designate this after-tax employee contribution in in a simple way for you uh professionals out there this is going to go in box 14 and it's going to be called after tax ee Kant contribution stand for contribution so after tax employee contribution box 14. and so that way the IRS knows that this employee put more money in the 401K but the the IRS is like well that's stupid why would they do that they didn't get a write-off it's because you're converting it to Ross yeah the IRS lets you and under the tax code you can convert after tax employee contributions right over you would be dumb to not do that yeah you can leave it as just after tax employee that's basically non-deductible traditional dollars but what you would be dumb immediately convert it to Roth which is going to take a process you have to do a Roth conversion you want a piece of paper an election form to do that and um and then you should get a 1099 also a 1099r but when you go on your 1040 and your tax returns it's not taxable because it was you did not take a deduction on it after tax employee so it is if some of you are thinking man this is weird well it is kind of pissy the way the IRS did this they said oh you can put up to sixty one thousand in a 401k but they didn't tell you how they're like you can yeah okay bye um and so this is so you would never really go to 61 unless you were doing all Roth that's the misnomer I don't think I've ever seen a client try to do 61 000 that wasn't Roth because you don't get a write-off to do that it's you're like it's dumb unless you're doing the traditional you mean like like you were like I just want all the tax write-offs I made a lot of money well you the company through a profit sharing might be able to do that 40 500 but you're definitely not a deduction on your W-2 so where are we getting the write-off in here so I'm just saying if I did traditional I wasn't a Roth guy I just want to do all traditional I want a 61 000 deduction between my employee and employer I could I could do that I mean it's gonna be a higher W-2 but I could get 61 in and traditional and have a huge deduction I take the under S Corp in my S Corp it take about 140 or 50 I think the maybe six I forget the number to Max it out yeah because you're taking the write-off at that point people in the S Corp and not on your W-2 and so um because again you can only do twenty thousand five hundred so when you're trying to get up to 61 the company is doing the rest for you and taking it right off in your for in your S Corp so it's just it's Unique um not something we you know recommend but okay yeah whoo all right should we get into the side door 401k is this yeah okay now before we go here let's give a quick commercial break and if you take the Whiteboard off for a minute Tristan let me here's the commercial break if you want to do a solo 401K here's what's cool you don't have to decide a lot of the total amounts you want to do until January because that's when you've got to issue your W-2 to yourself that's where the rubber meets the road you got to decide now this is an important point you got to decide by January how much you want to put in everywhere but you actually don't have to even put it in until April 15th nope it gets even better if you extend your S Corp return you could be all the way out until September 15th on this so you've got all year to put the money in you have until January to decide the exact amounts but to set this thing up you got four weeks with us because we got to get all this paperwork done before you're in our deadline is December 1st and thus you want to do it after that you're going to pay extra and beg because our paralegals are going to want to punch you in the face because it's a lot of work before the end of the year so we have imposed an internal deadline of December 1st to do a self-directed solo 401K you can go out on December 30th and set up some weird crazy expensive online Wall Street 401K but that's not what you want and if you see someone out there selling you a solo K well what do they call them they call them the eqrp yeah you you employ a qualified there's everybody out there calling them different names it's a damn 401k and they're going to let you set it up before your end but they don't give you a consult it's just a cookie cutter structure yeah be careful so if you're going to do it with us through the month of November we knock off a hundred dollars in your full consultation with an attorney to get it set up so it's eight it's 900 bucks so it's normally a thousand we knock off a hundred bucks yeah it's 900 if you just want the paralegals to assist you and you're like I don't need a conversation I know this backwards and forwards you better know it better forwards then you get 50 off and you can do it for 500 bucks yeah but that's our special you're gonna love it yeah now let me rephrase that process Mark was running through that you need a plan a solo 401K takes a plan agreement the law firm kqs lawyers we have a pre-approved plan with the IRS that's a solo 401k plan that you can max out contributions you can do these Roth elections that we've talked about you can do Roth conversions employee after tax contributions to the mega backdoor Roth you can self-direct it you can do loans where you can loan yourself half the balance of the 401K not to exceed 50 Grand all these bells and whistles we have on our solo kdoc it's amazing but you've got to have the plan set up by your end in order to make employee contributions now you may hear Matt I've heard after the secure act 2.0 this is a new law we've talked about it before so many of you that are like nerded out on this that's for employer contributions that you can set up the plan late you can set it up even into 2023 and still do 2022 contributions employer only we need to have this set up in 2022 to do the employee contribution piece of this which is the easiest and that's the bit that's the money 60 plus yeah if not you might as well just do a sep yeah I mean and sep sucks I mean I have whole videos on I screwed up and had to do a sep because I waited too long yeah so some of you are like well I've got a sup in fact I had someone yesterday to come and go well I've got to set because I have employees I can do a sep no yeah you cannot do a SEP with employees either now you have two years before your full-time employees kick you out so but still steps are terrible you get a foot race uh going with the 401K and this 401K wins every time yeah so all right so we've got the special if down in the link below on the YouTube video or in the podcast you can click at kqos lawyers.com we'll have the direct link to the page where in the middle of the night you can fill out the information you need and pay for it and have it done and then you'll get your consultation scheduled with the attorney so and bring a bunch of questions bring all this watch this video again so you can come with all your questions and what I'll say on the solo okay is that it might seem a little complicated at first because you're learning all these little buckets that we're talking about but guys it is not rocket science you set it up you get the process down for your first year and it takes there's a little learning curve so you want some professional help that's what we're here for all right don't try to hack this out online yourself we're here to fill in the questions help you understand the tax planning options the Roth options if you're trying to max out and do the mega back door Roth the self-directing piece if you're like I don't want to just buy stock spawns and mutual lens you can guys you can just easily do a brokerage account if that's all you're ready for right now with this Soul okay and get into real estate or other alternative assets later we can help on that piece too we'll be a resource for it but once you get the solo K dialed in you're just doing the same thing every year you know how to do it your account knows what's going on you get the payroll dial then and it becomes just easy it becomes habit and practice and routine and after you've been doing it for 10 years I just know because we've been doing it long enough and I see the clients that have just stuck with it and contributed this is a powerful strategy I have a lot of clients have seven figure solo 401K accounts because they started doing it 10 years ago maxing it out investing in the stuff that they know and now they got a big account and they're able to see the benefits of it because they stuck with it they saved they got consistent they didn't get hung up on this sounds complicated I love it now before we do this last strategy which is called the side door 401k and I'll explain that in a moment and those are for you rental property owners um just one other point here and that is there's power of self-directing it that's a big item you can't Overlook here we set up solo 401ks where there's an actual bank account set up for the 401K of which you get to be the trustee of now we have a custodial service plan directed Ira to do your accounting to do your 5500s and take care of you please sign up for that you don't want to start trying to maintain this on your own it's only like three or four hundred bucks a year super affordable but this 401K is going to have its own bank account and you can do notes you can do real estate you can set up an LLC and buy a little meth lab you can do all sorts of fun little things with it so the solo for and solo 401K can buy cryptocurrency you can invest in nft utility nfts so you can do all sorts of cool things with it and that's another powerful aspect because our clients tend to do better than Wall Street rates of return 10 to 20 or better because they're investing in what they know we're not making promises that we don't tell you what to invest in you get to but I'll tell you is it better than an ETF or mutual fund and the fees are far far less so um so powerful yeah all right let's hit the side door 401K wrap this up one of the issues that we have a lot of real estate clients that have built a big rental portfolio and maybe they got no day job or they just have the day job 401k and they're like guys I want to be able to do a solo cab no side hustle besides my real estate my rental properties well rental income does not qualify as self-employment income that you could contribute into a sole okay you have to have left side income over here on the trifecta you have to have business income self-employment income operational income rental income we love guys because rental income is not subject to self-employment tax so we love just leaving it over there but if you're like guys I want to be able to do a solo okay I want to contribute or just be able to qualify and roll over some other funds that's another perk by the way we didn't even mention you can roll over other Ira dollars and stuff into your solo okay by the way yeah let's stick on this strategy though sorry I can get distracted okay now here's the solution for you rental property owners rather than trying to set up a solo K in an LLC with rentals which we see happen all the time and is totally wrong if you have that let me just tell you right now you're screwed up start over get with us get a consult we'll try and help you clean it up but the solo k can still work for you we're going to set up a management company your rental property LLC is going to send over a management fee and some income to your your little property management company your management company now this could be an LLC Soul prop whatever but it's going to show up on your tax return probably on Schedule C all right and um your LLC is going to take an expense for sending this management fee over now in my schedule C I now have self-employment income I now qualify for a solo 401K so that side hustle sorry not side hustle this management company is who adopts your solo k plan now you're in the game yep and if you've seen this on YouTube you've seen this cute cute little picture work of art man you should sign this in auction engagement is an NFD right now Derek where are you okay all right so this little management fee coming over here replaces the W-2 because you're so you're not going to need an S corp you're not going to need a W-2 now we strongly recommend an LLC so that you have a separate Ein and you might this this LLC we see a lot of clients this LLC evolve all of a sudden things start happening they've got side gigs they've got 1099s they have Consulting and then if you don't have an LLC with an EIN and you just set up a sole prop solo you got to re-adopt a whole new one true if things go crap happens you know so we recommend just an affordable simple LLC Schedule C like Matt said tax return for that property management company the management fee is grossed up just like the W-2 so if you want to do 20 500 you're going to pay a management fee of around 22 000 100 so you're gonna your accountant and this is what our tax attorneys will do will help you determine how much that management fee should be so that after FICA you end up netting exactly what you need to do the 401K now the cool thing about this little management company it opens the doors to a lot of other things we might do an HRA Health reimbursement plan now we got a 105 Health reimbursement we might be taking some write-offs over here that you wouldn't be able to take because you weren't a real estate professional over on the right side so now we've got some office expenses maybe some travel expenses we could run this baby and really do some fun things with it so you're opening up a whole new world here and unlocking this for this 401K so I love the side door 401k to quote unquote unlock this opportunity and this that's kind of the key is this this little management company now uh Matt the other day kind of surprised me he goes you know Mark it's funny not a lot of people are opening not a lot we have more people opening solo 401ks to roll over old 401K money then to put in new 401K the new 401K money is kind of a bonus to them the main thing they wanted was a new receptacle yeah a new bucket to take this crappy Old Dell 401K they had sitting around right and yeah because the solo okay once you get into self-directing it's really cool you can have a checking account right in the solo case name that you get checkbook control of you can invest in real estate and IRAs have to pay udfi if you leverage that with debt but you can leverage debt in a Solo okay with no udfi tax this is all stuff we hit at the self-directed IRA Summit by the way stric.com you'll be able to get the recording in a week or two here but um but once you get into self-directing and so there's a lot of these rental property clients that are like Real Estate Investors they have a lot of rentals and like I want to get some rentals in my soul okay too I mean I got some deals I want to do I got all this retirement plan money invested in mutual funds from prior careers or retirement savings and I love the solo K concept so this is a good strategy for them um so does that call the rollover yeah just roll over it's not a transfer it's a rollover money coming out for 401ks so it's a direct rollover because it's going from plan to plan um so it's not taxable to you of course it's just going from one employer plan to a new one yeah and some of you might be sitting on a crappy 401K from an old job years ago and you're like I don't even know what's in it and it's sitting in some mutual fund or ETF getting the crap kicked out of it right now by setting up this solo you now just created a checkbook for that old 401K maybe that resonated with some of you that's just how simple it is so now you're like holy crap I can get a checkbook for my old 401K and go invest it in what I know best my sister-in-law's opening a new catering business down the street I'd like to invest in that and be a 30 owner with her or I'm going to go into the Dow and or some sort of decentralized autonomous organization in the metaverse or I'm going to go all my friends doing a rehab and they need some hard money and I'm going to do a note see all this has opened up with that checkbook and um super fun okay well that my friends and you can pull that white board down that is the power of the solo 401K boom Can you feel it I can feel it can you feel it the power of love let's turn that speaker up um little Hugh Lewis um all right well thanks everyone for being here there's a lot more resources we have on the solo K and self-directing so check out other podcast episodes remember the special right now if you're listening to this November 2022 get over to kqs lawyers.com we have that special on the home page save 100 bucks to get your solo okay done you need it for 2022 make sure it's done by your end get started now so you can be making 2022 contributions we're gonna be back next week with another incredible episode the main trip is this podcast thanks for being here see you then

Channel: Mark J Kohler

Views: 56,388

Keywords: tax, legal, entrepreneur, asset protection, wealth building, cpa, attorney, lawfirm, Mark J Kohler, Mark Kohler, Crypto, Bitcoin

Id: lfL1Epx8B-s

Length: 52min 16sec (3136 seconds)

Published: Tue Nov 01 2022