Hey there,
I run a small business with my wife as the only other employee. We have a Solo 401(k) for which we hope to max out the employer contribution (in addition to personal contributions). Our salaries cover all of our expenses and we no major expenses planned. That's all background.
As the business owner, I'm in a position that if I take extra withdrawals above W2 salary, I can take them as W2 Bonus or as Owner Draws. In the past, I've just defaulted to owner draws, but am not certain that this is the optimal choice.
Owner Draws have two obvious advantages in that (1) there's no FICA tax on them and (2) the 20% Qualified Business Income deduction.
A W2 Bonus has the advantage of increasing the Solo 401(k) Employer Contribution that can be made.
I'm guessing that since nearly everything I know and have read online, such as small business owners always aim to maximize draws over W2 salary (to the point of folks pushing the too low salary line), suggests that this is actually a no brainer in the end. That said, it'd be great to rest easy knowing I'm optimizing everything I can!
Thanks for any info and advice!
5Y2F