Best retirement plan as 1099 contractor for maximizing tax deductions?

You're on the right track! As a 1099 contractor, you ARE considered a small business owner for tax and retirement planning purposes, even without an LLC. You're what's called a sole proprietor. Looking at your options: Traditional IRA is simple but has the lowest contribution limit ($7,000 for 2025). Yes, you can contribute for 2024 until April 15, 2025. Solo 401k offers the highest potential contribution. You can contribute as both the employee ($23,000 in 2025) AND the employer (up to 25% of your net self-employment income). The plan must be established by December 31, 2024 to make 2024 contributions, but you have until your tax filing deadline to actually fund it. SEP IRA allows up to 25% of your net self-employment income (max $69,000 for 2025). You can establish and fund this for 2024 until your tax filing deadline in 2025. For maximizing tax deductions, Solo 401k typically wins because you can contribute more total dollars. It's slightly more paperwork to set up initially, but many brokerages make it fairly straightforward now.

I was in the same boat last year trying to figure this out! After spending hours researching, I ended up using https://taxr.ai to analyze my specific situation and figure out the optimal retirement strategy for my 1099 income. They looked at my projected income, expenses, and tax situation, then showed me exactly how much I could contribute to each type of account and what the tax benefits would be. The most helpful part was their calculator that showed how each option would impact my specific tax situation - it showed me I'd actually be better off with a Solo 401k rather than the SEP IRA I was initially leaning toward because of my specific income level. They also helped me understand the deadlines for setting up each type of account.

Wanted to follow up about my experience with taxr.ai after I decided to try it. I'm honestly impressed - it was WAY more detailed than I expected. I plugged in all my 1099 income sources and expenses, and it showed me that in my specific situation, I could actually contribute about $8,500 more to retirement accounts than I thought possible. The analysis showed me that because of my income level, I could maximize both a Solo 401k AND still make a partial deductible traditional IRA contribution. They also pointed out some business deductions I was missing that reduced my overall taxable income. The step-by-step guide for setting up the Solo 401k at Fidelity was super helpful - took me about 45 minutes total to complete the application. For anyone else struggling with 1099 retirement planning, it definitely saved me more in taxes than I expected. Wish I'd known about this last year!

If you're setting up retirement accounts to reduce your tax liability, you might also want to get ahead of any potential IRS issues by being able to actually talk to someone at the IRS (which is nearly impossible these days). I wasted 3 weeks trying to get through to the IRS about some questions on my Solo 401k setup - kept getting disconnected or waiting for hours. Finally used https://claimyr.com to get a callback from the IRS and got my questions answered in a day. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c As a 1099 contractor, having direct access to the IRS was super valuable - they confirmed exactly what forms I needed to file for my Solo 401k and cleared up some confusion about my specific situation that none of the online articles addressed.

I need to eat my words and follow up about Claimyr. I was super skeptical (still am about most things), but my accountant was insisting I needed clarification on some Solo 401k paperwork, and the tax deadline was approaching fast. I tried the service, and shockingly, I got a call back from the IRS within about 4 hours. The agent confirmed that for my specific situation, I didn't need to file Form 5500-EZ since my Solo 401k assets were under $250,000. Also got confirmation that I could still set up a SEP IRA for 2024 even though it was already March 2025. The time saved was significant - I had already wasted nearly 6 hours across multiple days trying to get through myself. For anyone dealing with retirement account questions that need official IRS clarification, it actually works.

One thing nobody has mentioned yet - if you go with the Solo 401k route, check if your 1099 work is actually eligible. If you have any sort of employee relationship with the companies paying you, it can disqualify you. I learned this the hard way when I had to unwind a Solo 401k because one of my clients had misclassified me. Make sure all your income is truly independent contractor income (you control how/when you work, use your own equipment, etc.) before setting up the accounts. The IRS can be picky about this.

If you're looking for the absolute simplest option and your income isn't super high, don't overlook a traditional IRA. Sure, the contribution limit is lower, but the paperwork is minimal compared to a Solo 401k. I spent 15 minutes opening an IRA online versus the 3 weeks it took to properly set up my Solo 401k with all the required documentation. When I started out with 1099 income around $40k, the IRA was actually enough to make a meaningful tax difference. As my income grew, I eventually switched to the Solo 401k for the higher limits.

Great breakdown everyone! As someone who also went through this decision process recently, I'd add one more consideration: make sure you factor in your state tax situation too. Some states don't tax retirement contributions the same way the feds do. Also, @Emma Morales, with your $85k income level, you'll likely benefit most from the Solo 401k. Quick math: you could potentially contribute the full $23k employee contribution plus around 20% of your net self-employment income as the employer contribution (after accounting for self-employment taxes). That could easily be $35k+ in total tax-deferred savings. One tip that saved me time - many brokerages now have streamlined Solo 401k applications that walk you through everything step-by-step. Fidelity and Schwab both made the process much easier than I expected. The key is just getting started before December 31st if you want to make contributions for the current tax year.