Author Topic: Confused on contributing to solo401k / turbotax issue?  (Read 1099 times)

dizzy

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Confused on contributing to solo401k / turbotax issue?
« on: December 26, 2024, 06:54:41 PM »
So I kind of goofed things up here:

This year was insane, earlier part of the year I was in a couple car accidents and dealing with insurances/totalled cars.  Various times work flared up, then my dad has been in crisis in and out of hospitals.  I lost track of everything.

Usually I contribute to (trad) solo401k.  All of my work is 1099.  I usually contribute most of my stuff end of year since the rest of the year I'm using it in various bank bonus shenanigans.

I had a solo401k at Schwab but then transferred it to Robinhood for the 3% match deal.

I had opened a new solo401k with fidelity well in advance but apparently they closed it since I hadn't contributed to it.  So I'm in a mad dash to open and contribute again.  They said it should be open by end of year, I expedited it.

My husband is unemployed, didn't work this year at all or earn any money.

In total I earned about $60k for the year.  We contributed already $13k to tradIRAs.  I've downloaded turbo tax home/biz like I always do and it's not showing any advantage to contributing money to my solo401k which seems odd. 

Is this a turbo tax issue or is it that income is too low?  It's also still showing I owe $8k+ in taxes, I guess that makes sense tho because I'm self employed?

What should I do with this money going forward- should I just front-load next year's solo401k?  Load up brokerage? (I have no money in brokerage due to trying to get AGI down.  My husband has almost all of his retirement savings in brokerage since he wasn't self-employed nor worked for a place with a retirement plan most of his working life).  Save and keep using in bank account bonuses?

I guess it's too late to open roth 401k.  I have student loans and recertify for the first time in years in January, it's really important for me to keep AGI as low as possible (going for eventual forgiveness unless they are forgiven early w/Borrower Defense, which I've applied for).  But I guess this is pretty low without me doing much, so trying to figure out best use of moneys.
« Last Edit: December 26, 2024, 07:00:54 PM by dizzy »

bacchi

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #1 on: December 26, 2024, 10:58:18 PM »
With your IRA contributions, your AGI will be low this year. After the standard deduction (and QBI), your taxable income will be very low.

1) Contributing to your solo 401k reduces your QBI deduction. This is probably why it's not showing much of an advantage to contributing.

2) The $8k+ owed is from your self-employment taxes (i.e., your FICA).

sonofsven

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #2 on: December 26, 2024, 11:23:01 PM »
Why can't you contribute to your existing solo 401k  account at Robin Hood?
You can also open a SEP IRA and contribute to it for '24 right up to April 15, or even to the extension date in October, if you can't get the new solo 401k account open in time.

dizzy

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #3 on: December 27, 2024, 07:27:38 AM »
@bacchi  yeah I think that's what is going on.
@sonofsven Robinhood doesn't have solo401ks, I had to roll it over as a tradIRA by closing the original plan.  Worth it for a huge 3% bump with only 2 yr holding period (I've never had a job with benefits, they are super rare in my two main careers).  I thought I had opened the new solo401k in plenty of time so it would be sitting there ready for me, but didn't realize they would close it if no money deposited for too long.

Yes that's true about SEP IRA, I did that a few years ago.  I'm not sure if I see the advantage to contributing though if it doesn't make a difference on my taxes (doesn't seem like there is a Roth SEP IRA lol).

Not sure what the play should be here, if I should just load into taxable brokerage since I don't have anything there, reclassify my trad IRA (I had done that earlier in the year for the 3% bonus), save for 2025 contributions (I have no idea if my husband will work, it doesn't feel likely but we really don't know) or something else.  I always really have no clue on how much I'll make for the year until year end (my 1099 "day job" I earned 20% less this year for instance, but my career 2 I earned 50% more soooooo)

bacchi

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #4 on: December 27, 2024, 09:12:04 AM »
FYI: You can't start a new 401k until 12 months after terminating the old one. It may be good that Fido closed your stagnant one.

With your low income, you could do a Roth conversion to fill up the 10% or 12% bracket. Vanguard can usually do it in 2 days but I don't know how fast RH is.

Given your unknown income next year, I'd put some into a HYSA and some in your brokerage account. If your income looks good, you can use the cash for plan contributions.

dizzy

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #5 on: December 27, 2024, 02:04:14 PM »
Huh, never heard that.  That's strange, even with a different provider?  Fidelity doesn't seem to have an issue with this.  I am reading on the internets that this is A Thing, welp, glad we didn't make too much money.

That's interesting about Roth conversions and probably a really good idea.  I'll give a holler to RH about it if I can, unfortunately I'm at work now and slammed today, tonight, tomorrow.

Thank you for your feedback!  I'll let you know how it goes.

dizzy

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #6 on: December 30, 2024, 08:14:37 AM »
@bacchi or whomever wants to throw in here

Welp, for whatever reason fidelity has allowed me to open a new solo401k.  I guess bc it was their fault the old one was closed (due to lack of funding?)

I'd highly appreciate it if you had a reference about roth conversions. 
Assuming AGI was $60k (sometimes I miss a 1099 or two) then that gives me almost $30k to convert!  That's huge.
Also- would that then mean if I contribute more to the solo401k, I could convert even more?  (like, contribute $15k, convert 15k from trad to roth?)

I just want to make sure I don't fk this up, this would make a huge difference for me.

bacchi

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #7 on: December 30, 2024, 10:13:38 AM »
@bacchi or whomever wants to throw in here

Welp, for whatever reason fidelity has allowed me to open a new solo401k.  I guess bc it was their fault the old one was closed (due to lack of funding?)

I'd highly appreciate it if you had a reference about roth conversions. 
Assuming AGI was $60k (sometimes I miss a 1099 or two) then that gives me almost $30k to convert!  That's huge.
Also- would that then mean if I contribute more to the solo401k, I could convert even more?  (like, contribute $15k, convert 15k from trad to roth?)

I just want to make sure I don't fk this up, this would make a huge difference for me.

Any IRA distribution has to be done by tomorrow (12/31).

Quote from: https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-iras#rollovers.
You can convert your traditional IRA to a Roth IRA by:

* Rollover – You receive a distribution from a traditional IRA and contribute it to a Roth IRA within 60 days after the distribution (the distribution check is payable to you);
[...]
* Same trustee transfer – If your traditional and Roth IRAs are maintained at the same financial institution, you can tell the trustee to transfer an amount from your traditional IRA to your Roth IRA.

Be cautious as you don't want to convert more than you're allowed. If you have a tax return/program from last year, plug in some rough numbers to see what happens (you'd be issued a form 1099-R and report it on form 8606). But act quickly.

I really wouldn't put any money into your new solo 401k until 12 months have passed since you terminated your last plan. The IRS probably won't notice but, if they do, the penalties are a lot.


Edit: Note that the conversion has to be in cash: https://robinhood.com/us/en/support/articles/roth-conversions/.
« Last Edit: December 30, 2024, 10:46:55 AM by bacchi »

dizzy

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Re: Confused on contributing to solo401k / turbotax issue?
« Reply #8 on: January 14, 2025, 02:30:36 PM »
Well joke is on me, apparently I was sent a notice to my student loan servicer inbox that I didn't have to recertify until Jan 2026 due to the SAVE injunction (I'm not on SAVE but somehow that delayed it?)

Yay: another year of $0, qualifying payments.  They even have a tracker now.  That means I'll have paid $0 in 10 yrs.
Nay: have to move some stuff around with taxes (I also didn't realize that P2's solar project on the RV will qualify us for credits since we do spend enough time in it per year).  Patiently waiting for more forms. 

We shall see if I can save us anything extra or not in the end but I'm really happy about another year of $0 after all of that.