October 31, 2024 • 12 mins
In this podcast, we're diving into the Solo 401(k) — what it is, who it’s for, and why you should care. Whether you own a sole proprietorship, run an LLC, or have an S-Corp, you'll learn how to make a Solo 401(k) work for you.
Plus, discover how to grow your money tax-free! If you’re self-employed or running your own business, this podcast is packed with tips to help you save big and keep more of your hard-earned cash.
I've put together this FREE resource for you:
7 Write-Offs Every S-Corporation Business Owner MUST Know
🆓 Download FREE PDF here: https://7taxwriteoffs.com/
Ready to start saving money on your taxes?
☎️ Schedule your FREE Tax Advisory Session: https://taxplanningcall.com/
🤩 If you are looking for easy-to-use payroll software, I personally use and recommend to my clients Gusto Payroll Software - https://gusto.com/r/boris466
P.S. When you sign up for Gusto, you get a $100 Visa gift card
*Disclaimer This material & presentation content is for informational and educational purposes only. This material and presentation content is designed to provide general information regarding the subject matter covered. It is not intended to serve as legal, tax, or other financial advice related to individual situations. Because each individual’s legal, tax, and financial situation is different, specific advice should be tailored to the particular circumstances. For this reason, ...
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
If you want to stash away $69,000 of your business
profits as a tax write-off, youshould consider a tax strategy
of a solo 401k.
We're first of all going todefine what is a solo 401k and
who is it good for.
Then we're going to talk abouthow to use a solo 401k, whether
you have a sole proprietorship,an LLC or even an S-corporation.
(00:23):
Right after that, and stay tillthe end, because we are going
to talk about how to use yoursolo 401k to grow your money
there completely tax-free.
Ready, let's dive in.
Speaker 2 (00:36):
Welcome to the Tax Reduction Podcast for
money-making entrepreneurs withBoris Mushaev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies, and this podcast is
(00:57):
all about saving you money ontaxes.
Boris will share with youin-depth and easy-to-understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.
Speaker 1 (01:10):
Perfect.
Let's get started Now.
First of all, before we use theSolo 401k as a tax strategy, we
really need to understand whatis it for, how does it work and
who is it really good for?
Now, solo 401k the name kind ofspeaks for itself.
Right, it's for the solo owner,one owner.
Now you could have multipleowners partners, for example or
(01:31):
your spouse could also be apartner in your business or own
it together with you.
Solo 401k will work in all ofthese situations.
When Solo 401k does not work iswhen you have employees.
As soon as you get employees,it automatically gets
disqualified.
So you want to make sure, ifyou are an owner, or you have
(01:51):
partners, or you've got spousein your business, you might want
to start considering using asolo 401k, because solo 401k can
really give you a $69,000 taxwrite-off in the first year.
Now let's talk about setting upa solo 401k.
Really, there's two types ofretirement accounts that we have
.
One of them is called atraditional.
(02:11):
Think about it this wayWhatever money you're putting
away, you're getting a taxwrite-off, which is exactly what
the solo 401k is.
You get a tax write-off, but atthe time of retirement,
whatever your retirement accountis going to earn, you're going
to pay taxes not only on thecontribution but also on all the
distribution.
You can also set up your solo401k as a Roth 401k, and this is
(02:35):
what we're going to talk aboutin the Roth 401k.
Any money that you put into theRoth 401k all of that money is
not tax deductible or some of itcould be tax deductible,
depending how you structure itwith your tax advisor, and at
the time of retirement it willbe tax-free to you.
So we've got two optionstraditional solo 401k and a Roth
(02:58):
solo 401k.
Both have different functionsand that's exactly what we're
gonna talk about.
But right now we're gonna covera tax strategy how solo 401k
works as a tax write-off.
Whether you're an LLC,s-corporation or a partnership
business, solo 401k can be usedfor all of these three entities.
(03:18):
Let's start with a soleproprietorship.
Now, what is a soleproprietorship?
It is not a corporation, it isnot an entity.
It is reported on your personaltaxes.
When you're a sole proprietor,you don't take out any salary
from it because everything getsreported on your personal taxes
on a Schedule C of your 1040form.
Now the IRS says hey, if you'rea single owner of that business
(03:40):
, which sole proprietorships areusually single owner businesses
.
So the IRS says if you are asingle owner of that business,
what we will allow you to do isput away $23,000 into your solo
401k.
Is put away $23,000 into yoursolo 401k.
(04:00):
On top of that, you have totake a net profit of your sole
proprietorship.
Okay, take net profit of yoursole proprietorship and put away
25%.
That is a business contribution.
So let's do a quick example.
You have a net profit meaningto say, after deducting all of
the expenses, $100,000.
Now you, as an owner of thatbusiness, can put away $23,000
plus 25% of $100,000, whichbrings up your total
(04:24):
contribution to $48,000.
Now you might say well, boris,you said that I can put away
$69,000 into solo 401k.
That's true.
What's limiting you to put awaythe $69,000?
Is that net profit of $69,000into solo 401k.
That's true.
What's limiting you to put awaythe $69,000 is that net profit
of $100,000.
Now, in order for you tomaximize that solo 401k, the net
profit in your soleproprietorship should be
(04:46):
$184,000.
But when you have a net profitof $184,000 in your sole
proprietorship, you should notbe a sole proprietor, nor should
you be an LLC single ownermember.
What you need to be anS-corporation and that is why
it's important for you to alwaysspeak to your tax advisor.
When is the best time for youto be an S-corporation?
How much salary should you payso that you can properly
(05:08):
calculate your solo 401kcontribution to get a maximum
deduction?
Now let's talk about a taxstrategy where you are an S
corporation, you're taking areasonable compensation and how
your solo 401k contributionswould work.
So same example okay, you'vegot $100,000 in your S
(05:30):
corporation.
$100,000 in your S corporation,let's say that is your net
profit.
Additionally, you took out$100,000 W-2.
Now, with an S corporation, thenet profit no longer matters.
What matters is your W-2.
So the IRS says you can putaway $23,000 from the W-2 that
(05:51):
you take from your S corporation, which is your reasonable
compensation.
So $23,000 is a deferral whichyou put away into the solo 401k.
On top of that, you can take25% of your W-2 salary.
So in our example, we've got$100,000 salary.
So again, that brings yourcontribution to $48,000.
(06:16):
But because you are anS-corporation owner, you can
actually take a look at yourcompensation and make a decision
with your tax advisor.
Should you increase yourcompensation to $184,000 to get
a maximum write-off into yoursolo 401k, which will bring you
up to $69,000.
Now, if you're over the age of50, your contribution goes up to
(06:40):
$76,500.
It's a big difference.
So strategizing with your taxadvisor is super, super
important Because, as anS-corporation owner, first of
all you've got to pay yourself areasonable compensation.
Maybe in your case thereasonable compensation is
$100,000.
But your tax advisor could comeup with strategic ways to say,
(07:01):
hey, we can actually increaseyour reasonable compensation if
it makes sense on the tax-wise.
Okay, so that we can maximizeyour solo 401k contribution.
Because, remember, as anS-corporation owner, you can
maximize your solo 401kcontribution to $69,000.
You're going to be putting away$23,000 from your paycheck,
(07:24):
right?
Whatever paycheck you get froman S-corporation, $23,000 goes
into solo 401k.
On top of that, 25% of your W-2will go into your solo 401k.
Now that we have identifiedthis tax strategy, let's go and
talk about how you can createyour put together, excuse me,
(07:44):
establish a solo 401k, which isa Roth solo 401k, and all the
money that you can contributecan be tax-free.
We'll be back right after thisbreak.
Speaker 2 (07:54):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Bora's put together a free PDFfor you, the business owner
Seven tax write-offs everyS-corporation business owner
must know.
In this PDF you can find seventax strategies that you can
(08:18):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.
Speaker 1 (08:25):
Awesome.
Now let's talk about how yourSolo 401k can grow tax-free.
Remember what we said aboutSolo 401k it is for owners only.
Like one owner, two owners oryou've got a spouse in your
business, that's not a problem.
So you can actually control howyou can and where you can
contribute their money.
Now Solo 401k can also be setup where you do not get a
(08:48):
$69,000 write-off, like we'vetalked about earlier, but all
the money that you put away willbe after taxes and that means
all the money in that solo 401kis going to grow tax-free.
So in our previous example wetalked about let's just take an
S corporation owner $100,000 W-2salary.
We'll take a 25% of that.
(09:10):
That's a $25,000 contributionplus, assuming if you're under
the age of 50, another $23,000,which is deferred from your W-2,
.
That is a total of $48,000contribution.
That $48,000 will not be a taxwrite-off, but when you invest
it in wherever it is that you'regonna invest it, your solo 401k
(09:31):
everything over there is gonnagrow tax-free.
Now you can also have an optionwhere the $23,000 of your
salary which is deferral okay,which is deferral can be a Roth
IRA contribution after taxes,which means it's going to grow
tax-free, but the 25% of yourW-2 salary.
(09:51):
That could be a write-off.
You could really get the bestof both worlds and you can
balance it out for yourself.
The other amazing thing aboutthis setting up a solo 401k is
that you can also set up aself-directed solo 401k.
What self-directed means isthat you don't necessarily need
to give it to a financialinstitution.
What you can do is invest themoney yourself wherever you want
(10:16):
it.
That could be securities,stocks, bitcoin, real estate.
As a matter of fact, solo 401kare best for self-directed real
estate investments.
Of course, seek professionaladvice, self-directed real
estate investments.
Of course, seek a professionaladvice.
Hire a company that actuallyhandles this and where you can
open up a solo 401k andcontribute it with them.
(10:36):
I personally have a client whohas done it on his own, without
the help of a professional, justGoogled it before working with
us and he was over-contributing,didn't know how much money is
being taken out of his bankaccount.
Definitely do not do that.
It's a great strategy to use.
It is actually not complicatedat all.
First of all, what you need isa tax strategist, a tax advisor,
(10:58):
somebody that can tell you hey,this is how you can set it up
and this is how it could work.
Then you hire a professionalthat can handle your
self-directed solo 401k money,put together the proper
paperwork for you so that youcan legally and be in compliance
when you invest in real estate,stocks or cryptocurrency.
Solo 401k is a great taxstrategy.
(11:19):
It can give you a write-off upto $69,000, or you can choose
not to take the entire $69,000write-off.
Instead, invest in a Roth solo401k where your money is going
to grow tax-free.
Even better, you can do aself-directed solo 401k.
All of these options areavailable to you, the business
(11:41):
owner.
What you need is a taxstrategist.
Make sure you speak to a taxadvisor.
Do not speak to your taxpreparer, because your tax
preparer is just putting theright numbers in the right boxes
.
They speak to you once a year.
This is something that you needto do with a tax advisor.
Thank you, until the next time.
Speaker 2 (11:58):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the
(12:23):
next strategy is released.
If you want to stash away $69,000 of your business
profits as a tax write-off, youshould consider a tax strategy
of a solo 401k.
We're first of all going todefine what is a solo 401k and
who is it good for.
Then we're going to talk abouthow to use a solo 401k, whether
you have a sole proprietorship,an LLC or even an S-corporation.
(00:23):
Right after that, and stay tillthe end, because we are going
to talk about how to use yoursolo 401k to grow your money
there completely tax-free.
Ready, let's dive in.
Speaker 2 (00:36):
Welcome to the Tax Reduction Podcast for
money-making entrepreneurs withBoris Mushaev.
Boris has helped entrepreneursacross the United States
collectively save millions ofdollars in taxes with the power
of tax planning and advisory.
The only way you, the businessowner, can save money on taxes
is by using proactive taxstrategies, and this podcast is
(00:57):
all about saving you money ontaxes.
Boris will share with youin-depth and easy-to-understand
tax reduction strategies thatyou can implement in your
business within 30 days or less.
Let's jump into today's episode.
Speaker 1 (01:10):
Perfect.
Let's get started Now.
First of all, before we use theSolo 401k as a tax strategy, we
really need to understand whatis it for, how does it work and
who is it really good for?
Now, solo 401k the name kind ofspeaks for itself.
Right, it's for the solo owner,one owner.
Now you could have multipleowners partners, for example or
(01:31):
your spouse could also be apartner in your business or own
it together with you.
Solo 401k will work in all ofthese situations.
When Solo 401k does not work iswhen you have employees.
As soon as you get employees,it automatically gets
disqualified.
So you want to make sure, ifyou are an owner, or you have
(01:51):
partners, or you've got spousein your business, you might want
to start considering using asolo 401k, because solo 401k can
really give you a $69,000 taxwrite-off in the first year.
Now let's talk about setting upa solo 401k.
Really, there's two types ofretirement accounts that we have
.
One of them is called atraditional.
(02:11):
Think about it this wayWhatever money you're putting
away, you're getting a taxwrite-off, which is exactly what
the solo 401k is.
You get a tax write-off, but atthe time of retirement,
whatever your retirement accountis going to earn, you're going
to pay taxes not only on thecontribution but also on all the
distribution.
You can also set up your solo401k as a Roth 401k, and this is
(02:35):
what we're going to talk aboutin the Roth 401k.
Any money that you put into theRoth 401k all of that money is
not tax deductible or some of itcould be tax deductible,
depending how you structure itwith your tax advisor, and at
the time of retirement it willbe tax-free to you.
So we've got two optionstraditional solo 401k and a Roth
(02:58):
solo 401k.
Both have different functionsand that's exactly what we're
gonna talk about.
But right now we're gonna covera tax strategy how solo 401k
works as a tax write-off.
Whether you're an LLC,s-corporation or a partnership
business, solo 401k can be usedfor all of these three entities.
(03:18):
Let's start with a soleproprietorship.
Now, what is a soleproprietorship?
It is not a corporation, it isnot an entity.
It is reported on your personaltaxes.
When you're a sole proprietor,you don't take out any salary
from it because everything getsreported on your personal taxes
on a Schedule C of your 1040form.
Now the IRS says hey, if you'rea single owner of that business
(03:40):
, which sole proprietorships areusually single owner businesses
.
So the IRS says if you are asingle owner of that business,
what we will allow you to do isput away $23,000 into your solo
401k.
Is put away $23,000 into yoursolo 401k.
(04:00):
On top of that, you have totake a net profit of your sole
proprietorship.
Okay, take net profit of yoursole proprietorship and put away
25%.
That is a business contribution.
So let's do a quick example.
You have a net profit meaningto say, after deducting all of
the expenses, $100,000.
Now you, as an owner of thatbusiness, can put away $23,000
plus 25% of $100,000, whichbrings up your total
(04:24):
contribution to $48,000.
Now you might say well, boris,you said that I can put away
$69,000 into solo 401k.
That's true.
What's limiting you to put awaythe $69,000?
Is that net profit of $69,000into solo 401k.
That's true.
What's limiting you to put awaythe $69,000 is that net profit
of $100,000.
Now, in order for you tomaximize that solo 401k, the net
profit in your soleproprietorship should be
(04:46):
$184,000.
But when you have a net profitof $184,000 in your sole
proprietorship, you should notbe a sole proprietor, nor should
you be an LLC single ownermember.
What you need to be anS-corporation and that is why
it's important for you to alwaysspeak to your tax advisor.
When is the best time for youto be an S-corporation?
How much salary should you payso that you can properly
(05:08):
calculate your solo 401kcontribution to get a maximum
deduction?
Now let's talk about a taxstrategy where you are an S
corporation, you're taking areasonable compensation and how
your solo 401k contributionswould work.
So same example okay, you'vegot $100,000 in your S
(05:30):
corporation.
$100,000 in your S corporation,let's say that is your net
profit.
Additionally, you took out$100,000 W-2.
Now, with an S corporation, thenet profit no longer matters.
What matters is your W-2.
So the IRS says you can putaway $23,000 from the W-2 that
(05:51):
you take from your S corporation, which is your reasonable
compensation.
So $23,000 is a deferral whichyou put away into the solo 401k.
On top of that, you can take25% of your W-2 salary.
So in our example, we've got$100,000 salary.
So again, that brings yourcontribution to $48,000.
(06:16):
But because you are anS-corporation owner, you can
actually take a look at yourcompensation and make a decision
with your tax advisor.
Should you increase yourcompensation to $184,000 to get
a maximum write-off into yoursolo 401k, which will bring you
up to $69,000.
Now, if you're over the age of50, your contribution goes up to
(06:40):
$76,500.
It's a big difference.
So strategizing with your taxadvisor is super, super
important Because, as anS-corporation owner, first of
all you've got to pay yourself areasonable compensation.
Maybe in your case thereasonable compensation is
$100,000.
But your tax advisor could comeup with strategic ways to say,
(07:01):
hey, we can actually increaseyour reasonable compensation if
it makes sense on the tax-wise.
Okay, so that we can maximizeyour solo 401k contribution.
Because, remember, as anS-corporation owner, you can
maximize your solo 401kcontribution to $69,000.
You're going to be putting away$23,000 from your paycheck,
(07:24):
right?
Whatever paycheck you get froman S-corporation, $23,000 goes
into solo 401k.
On top of that, 25% of your W-2will go into your solo 401k.
Now that we have identifiedthis tax strategy, let's go and
talk about how you can createyour put together, excuse me,
(07:44):
establish a solo 401k, which isa Roth solo 401k, and all the
money that you can contributecan be tax-free.
We'll be back right after thisbreak.
Speaker 2 (07:54):
If you have a tax preparer and you do not have a
tax advisor, the only way youcan save money on taxes is by
using proactive tax planningstrategies that only a tax
advisor can give you.
Bora's put together a free PDFfor you, the business owner
Seven tax write-offs everyS-corporation business owner
must know.
In this PDF you can find seventax strategies that you can
(08:18):
start using in your business toinstantly start saving money on
taxes.
Click on the link in thedescription below for a free
download.
Speaker 1 (08:25):
Awesome.
Now let's talk about how yourSolo 401k can grow tax-free.
Remember what we said aboutSolo 401k it is for owners only.
Like one owner, two owners oryou've got a spouse in your
business, that's not a problem.
So you can actually control howyou can and where you can
contribute their money.
Now Solo 401k can also be setup where you do not get a
(08:48):
$69,000 write-off, like we'vetalked about earlier, but all
the money that you put away willbe after taxes and that means
all the money in that solo 401kis going to grow tax-free.
So in our previous example wetalked about let's just take an
S corporation owner $100,000 W-2salary.
We'll take a 25% of that.
(09:10):
That's a $25,000 contributionplus, assuming if you're under
the age of 50, another $23,000,which is deferred from your W-2,
.
That is a total of $48,000contribution.
That $48,000 will not be a taxwrite-off, but when you invest
it in wherever it is that you'regonna invest it, your solo 401k
(09:31):
everything over there is gonnagrow tax-free.
Now you can also have an optionwhere the $23,000 of your
salary which is deferral okay,which is deferral can be a Roth
IRA contribution after taxes,which means it's going to grow
tax-free, but the 25% of yourW-2 salary.
(09:51):
That could be a write-off.
You could really get the bestof both worlds and you can
balance it out for yourself.
The other amazing thing aboutthis setting up a solo 401k is
that you can also set up aself-directed solo 401k.
What self-directed means isthat you don't necessarily need
to give it to a financialinstitution.
What you can do is invest themoney yourself wherever you want
(10:16):
it.
That could be securities,stocks, bitcoin, real estate.
As a matter of fact, solo 401kare best for self-directed real
estate investments.
Of course, seek professionaladvice, self-directed real
estate investments.
Of course, seek a professionaladvice.
Hire a company that actuallyhandles this and where you can
open up a solo 401k andcontribute it with them.
(10:36):
I personally have a client whohas done it on his own, without
the help of a professional, justGoogled it before working with
us and he was over-contributing,didn't know how much money is
being taken out of his bankaccount.
Definitely do not do that.
It's a great strategy to use.
It is actually not complicatedat all.
First of all, what you need isa tax strategist, a tax advisor,
(10:58):
somebody that can tell you hey,this is how you can set it up
and this is how it could work.
Then you hire a professionalthat can handle your
self-directed solo 401k money,put together the proper
paperwork for you so that youcan legally and be in compliance
when you invest in real estate,stocks or cryptocurrency.
Solo 401k is a great taxstrategy.
(11:19):
It can give you a write-off upto $69,000, or you can choose
not to take the entire $69,000write-off.
Instead, invest in a Roth solo401k where your money is going
to grow tax-free.
Even better, you can do aself-directed solo 401k.
All of these options areavailable to you, the business
(11:41):
owner.
What you need is a taxstrategist.
Make sure you speak to a taxadvisor.
Do not speak to your taxpreparer, because your tax
preparer is just putting theright numbers in the right boxes
.
They speak to you once a year.
This is something that you needto do with a tax advisor.
Thank you, until the next time.
Speaker 2 (11:58):
That's it for today's episode.
Be sure to check out thedescription below for some free
tax reduction resources thatBoris put together for you.
If you're ready to work with atax advisor on your tax planning
, be sure to schedule your callby heading over to
wwwtaxplanningcallcom.
That's wwwtaxplanningcallcom.
And be sure to subscribe to ourpodcast to be notified when the
(12:23):
next strategy is released.
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