Can I use my 1099 income to contribute to my 401k plan?

Thanks for the breakdown! So if I'm understanding right, I could open a Solo 401k for my 1099 work and put in money there, but I need to watch the combined limits with my regular job's 401k? Does it matter which one I fund first?

You've got it exactly right! The $23,000 employee contribution limit applies across ALL your 401(k) accounts combined. It doesn't matter which one you fund first - the IRS just cares about the total. For example, if you've already put $10,000 into your employer's 401(k) as an employee, you could only contribute $13,000 as an employee contribution to your Solo 401(k). But don't forget the big advantage - you can still make that employer contribution to your Solo 401(k) based on your self-employment income, which doesn't count toward that $23,000 limit.

How accurate was the recommendation though? Did you have any issues when you filed your taxes or did everything work out with the amounts they suggested?

I've been looking at different solutions for this exact problem. Does taxr.ai handle the actual setup of the Solo 401k or just tell you how much you can contribute? I'm worried about the paperwork side of things too.

Their recommendation was spot on - I had my accountant double-check it and he confirmed everything was correct. No issues at all when I filed, and I maximized my tax savings exactly as they projected. They don't handle the actual setup of the Solo 401k - you'll need to open that with a brokerage like Vanguard, Fidelity, or Charles Schwab. What taxr.ai does is analyze your specific income situation to tell you exactly how much you can contribute to each account to optimize tax savings. They helped me understand the calculations for the employer portion based on my self-employment income, which was the most confusing part.

Wait, this actually works? I've literally spent HOURS on hold with the IRS trying to get clarification on my 1099/401k situation. How much did this service cost? Sounds too good to be true honestly.

I'm super skeptical about this. The IRS is notoriously impossible to reach. How do they magically get through when millions of people can't? Sounds like they're just taking your money for something that probably doesn't work.

Yes, it absolutely works! I was shocked too when I got the callback. Their system keeps dialing and navigating the phone tree so you don't have to waste your time on hold. I don't remember the exact cost, but it was reasonable considering the hours of frustration it saved me. Think about how much your time is worth - for me, not spending 3+ hours on hold was definitely worth it. The best part was getting definitive answers from an actual IRS agent about my specific situation.

Good point about the deadline! Also, does anyone know if you need a business EIN to open a Solo 401k, or can you just use your SSN if you're a sole proprietor with 1099 income?

You're right to ask about the EIN - technically you can open the Solo 401k with just your SSN if you're a sole proprietor, but most brokerages will still ask you to get an EIN anyway. It's free and takes like 5 minutes online through the IRS website, so I'd just go ahead and get one. The bigger thing to watch out for is that not all brokerages are created equal for Solo 401ks. Some charge fees, some don't allow Roth options, some have limited investment choices. I'd recommend comparing Fidelity, Vanguard, and E*TRADE before deciding - they all have slightly different features.

For $18k in 1099 income it's DEFINITELY worth it. Quick math: assuming about $15k net after deducting expenses, you could put away around $3k as employer contribution (20% of net) plus whatever employee contribution you have room for. At a 24% tax bracket, that's roughly $720+ in immediate tax savings just from the employer portion. Plus all the tax-deferred growth over the years.

This is super helpful seeing actual numbers! I'm in a similar tax bracket so this gives me a good idea of what to expect. One quick question - when you say "self-employment tax adjustment," are you referring to the fact that you can deduct half of your SE tax when calculating the contribution base? I want to make sure I'm not missing any deductions when I calculate my own limits.

Exactly right! The self-employment tax adjustment refers to deducting half of your SE tax from your net earnings when calculating the contribution base. So if you had $17k in net SE income and paid, say, $2,400 in SE tax, you'd deduct half of that ($1,200) to get $15,800 as your adjusted net earnings. Then you calculate the ~20% employer contribution on that adjusted amount. It's one of those quirky tax rules that's easy to miss if you're doing the math yourself. The IRS has worksheets in Publication 560 that walk through this calculation step by step, but honestly tools like the ones others mentioned here probably handle this adjustment automatically. The adjustment usually reduces your contribution limit by a few hundred dollars compared to just using your gross 1099 income.

This is really helpful context from a professional perspective! I had no idea about the self-employment tax vs income tax distinction with Solo 401k contributions. So just to make sure I understand - the retirement contribution saves me money on my regular income tax bracket (say 22%), but I still pay the full 15.3% SE tax on my net self-employment income regardless of how much I contribute to the Solo 401k? That's still a great deal, but good to know the SE tax piece doesn't get reduced. Also appreciate the reminder about business deductions - I definitely have some home office and equipment expenses I should be tracking better. Do you have any recommendations for the most commonly missed deductions for 1099 workers?

You've got it exactly right! The Solo 401k contribution only reduces your regular income tax, not the SE tax. The SE tax is calculated on your net self-employment income before any retirement contributions. For commonly missed deductions, here are the big ones I see 1099 workers overlook: internet/phone bills (business portion), professional subscriptions and memberships, continuing education courses, business meals (50% deductible), mileage for business travel, and office supplies. If you work from home, the home office deduction can be substantial - you can either use the simplified method ($5/sq ft up to 300 sq ft) or actual expense method. Also, don't forget about equipment depreciation if you bought a computer, desk, etc. for business use. And if you're doing any networking or client entertainment, those meals and activities can add up to significant deductions. The key is keeping good records throughout the year rather than trying to reconstruct everything at tax time!