Gig economy taxes

[kat911]

Hi everyone,

My son has used a number of gig economy apps to make money this year and has made about $700 so far - will probably end up making around $1,000 this year.  Being an independent contractor for these types of jobs, he can set up a solo roth 401k correct? Can he do that with Vanguard?

Does he need proof from these companies that they paid him that much?  Many say that they will only send a statement out if you make over $600 with their specific service and he may only do that with one app.

Thanks!

[MDM]

Does he need proof from these companies that they paid him that much?

When he files and pays his self-employment taxes, the net income declared there should suffice as justification for a Roth IRA (custodial Roth IRA if he is under 18).

No need to bother with a solo 401k for amounts the Roth IRA will allow.  And good for him!

[kat911]

Does he need proof from these companies that they paid him that much?

When he files and pays his self-employment taxes, the net income declared there should suffice as justification for a Roth IRA (custodial Roth IRA if he is under 18).

No need to bother with a solo 401k for amounts the Roth IRA will allow.  And good for him!

Ok thank you.  He will have maxed out a roth ira already from working part time through the year so I was wondering if he would be able to open a roth 401k?  Does he need any licensing as a business, or can he just do that on vanguard?

[bacchi]

There's no licensing but Vanguard does require an EIN, which is free from the IRS.

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

The Vanguard 2060 fund has a $1000 minimum. There's no money market or ETFs with the Vanguard solo 401k so $1000 may be the bare minimum.

The Fidelity solo 401k might be a better choice, since it allows ETFs.

[terran]

The Fidelity solo 401k doesn't allow Roth though.

Since your son is so early in his career, and obviously has some entrepreneurial tendencies he may want to be careful with the solo 401k. If he ever has employees in this or any business he owns things could get complicated and expensive since the solo 401k is only allowed for businesses without employees. I believe it's SeattleCylcone (or maybe SeattleCPA) who I've seen warn about this issue. Pretty sure this is the post I've seen him link to: https://evergreensmallbusiness.com/hidden-small-business-pension-plan-costs/

[kat911]

The Fidelity solo 401k doesn't allow Roth though.

Since your son is so early in his career, and obviously has some entrepreneurial tendencies he may want to be careful with the solo 401k. If he ever has employees in this or any business he owns things could get complicated and expensive since the solo 401k is only allowed for businesses without employees. I believe it's SeattleCylcone (or maybe SeattleCPA) who I've seen warn about this issue. Pretty sure this is the post I've seen him link to: https://evergreensmallbusiness.com/hidden-small-business-pension-plan-costs/

Thanks for the link!  That is good to know.

Thanks for the help too bacchi.