Taxation Optimization (Self Employed)

[channant]

Hello MMM crew!

Thanks to my recent research, including a wealth of knowledge obtained from this forum, I've been taking major steps toward FIRE over the past few weeks! Notably:

1) Opened a traditional IRA account in addition to my Roth
2) Recharacterized Roth contributions for this year and maxed out IRA to $5500 in the traditional.
3) Opened an individual 401k and contributed max $18,500
4) Paid off car loan leaving only debt to be my mortgage ($206k left at 3.5% - $1,400/month)

So now with this foundation in place, I'm looking to optimize my situation for this tax year and set a pace for the years to come. Looking for advice given the following:

1) I'm 30 years old and self employed as a sole proprietor. I have a family friend who's a CPA that does my taxes.
2) I'm estimating $75k AGI for 2018 (before contributions).
3) I have 24k sitting in a ROTH that I was funding before realizing traditional was better for my situation.
4) $5,600 in new traditional account after some growth this year.
5) $18,500 in individual 401k
6) Investments mentioned above are with Vanguard and 100% in VTSAX.
7) I have about $50k in a savings account which I'm ready to invest.
8) Goal is to be FI in 15 years (age 45)

I'm thinking the first best move would be to utilize employer contributions on the 401k which, being a sole proprietor, would be 20% of my income. I'd love some clarity on how this works from anyone else doing this as a sole proprietor or at least self employed! I'm a little confused on when during the year I should do this and how much of this can be deducted for taxes. Also, I'm assuming here that by putting enough into my 401k, that will reduce my MAGI to even allow me to use the traditional IRA with full deductions, am I correct here?

From there, are there any other tax advantaged accounts I should be taking advantage of? Maybe a SEP and/or Simple IRA? Is it silly to have that many IRAs and can I even contribute to anymore after maxing out the traditional?

Taxable account? With what's left I'm thinking of just letting some cook in here.

Anything else I'm missing?

[jacoavluha]

Employer contributions to the solo 401k are pretax. They will reduce your AGI. Same for pre tax salary deferral. Same for traditional IRA contribution. Same for self employed business expenses and self employment tax.

You should use TFBs spreadsheet to get a good estimate of your allowed employer contribution to the solo 401k. Note that you need to input the up to date figures for the salary deferral limits, plan limits, social security wage base. The output number is not precisely 20% of income. And you do not want to over contribute.

https://docs.zoho.com/sheet/published.do?rid=hd3vb2c79aa2e630443d58a05e8140934898a&mode=html

You should assess your self employed income quarterly and then make an under estimated profit sharing contribution. Make the fourth contribution in Jan of the next year. And then a fifth and final contribution for the plan year after completing but before filing your tax return. Because the precise numbers for the contribution limits come from the tax forms. By making the two final contributions in the next calendar year if you have screwed something up those contributions could be recharacyerozed to the next year. Not so if made before 1/1. And you have until the return is filed to make the plan year contributions.

You can only have one qualified plan per business. Your sole proprietorship. So you can’t also have a SEP or SIMPLE IRA for your self employment. You can still contribute to a traditional or Roth IRA because those are not employer plans.

As to whether pretax or Roth is better for you depends on where all these numbers shake out. Do the math. If you get your marginal rate down to the 12% level I’d vote for Roth rather than traditional.