Self employed - how to handle quarterly taxes while setting up a solo 401k?

Your understanding is mostly on the right track! For your solo 401k, you can contribute as both the "employee" and the "employer" since you're self-employed. As the employee, you can contribute up to $23,000 for 2025 (minus whatever you already contributed at your previous job). As the employer, you can contribute up to 25% of your net self-employment income. For quarterly taxes, you'll need to pay both the self-employment tax (15.3%) and income tax on your earnings. The self-employment tax calculation is correct, but don't forget to include estimated income tax too. You can use Form 1040-ES to calculate the proper amount. And yes, contributing to a solo 401k will reduce your MAGI, which could help you stay under the Roth IRA threshold. Traditional solo 401k contributions are pre-tax and directly reduce your MAGI. This is a common strategy for people near the Roth IRA income limits.

I was in a similar position last year and found https://taxr.ai super helpful for calculating my solo 401k contributions correctly. It analyzed my 1099 income and helped me determine exactly how much I could contribute as both employer and employee. The solo 401k saved me thousands in taxes and their guidance helped make sure I didn't mess up the calculations. When I was trying to figure out quarterly payments, I was totally confused about how much to set aside. Their document review confirmed my self-employment income didn't need to be reported until I exceeded certain thresholds, which saved me unnecessary payments. Definitely worth checking out for anyone new to self-employment taxes.

Just wanted to update - I tried taxr.ai after seeing the recommendation here and it was seriously helpful! I was overthinking my quarterly tax payment calculations and their document analysis pointed out that I could reduce my estimated quarterly payment by about $800 due to deductions I hadn't considered. The solo 401k breakdown was super clear too. They confirmed I could contribute about 93% of my net earnings (after the SE tax deduction) and showed me exactly how to calculate both the employer and employee portions. They even pointed out that I needed to open the account before December 31st, which I had no idea about. Really glad I checked it out!

After struggling to get through to the IRS about some solo 401k questions (was on hold forever), I used https://claimyr.com and it was a game changer. They got me connected to an actual IRS agent in about 20 minutes instead of the 2+ hours I spent trying on my own. You can see how it works here: https://youtu.be/_kiP6q8DX5c The agent confirmed that yes, solo 401k contributions do reduce your MAGI for Roth IRA qualification purposes, which was huge for me since I was also right at the threshold. They also clarified that I had to establish the solo 401k before year-end, but had until my tax filing deadline to actually make the contributions. Saved me from making a major timing mistake!

Had to come back and eat my words. I tried Claimyr after posting my skeptical comment because I was desperate to get an answer about solo 401k contribution deadlines. Got through to an IRS agent in under 30 minutes after trying for DAYS on my own. The agent confirmed that I can establish a solo 401k for my side gig even though I have a regular job with a 401k. Just need to make sure my combined employee contributions don't exceed the annual limit. Also found out I was calculating my employer contribution wrong - it's 25% of net earnings (after deducting half of self-employment tax), which was different than what I thought. Saved me from potentially over-contributing. Worth every penny just for the time saved alone.

Quick tip on the Roth IRA situation - if you do end up slightly over the income limit even after your solo 401k contributions, look into the "backdoor Roth" strategy. You contribute to a traditional IRA (no income limits) and then convert it to a Roth. As long as you don't have other traditional IRA balances, it's pretty straightforward. Just make sure you do the paperwork right for the solo 401k. I messed up my plan documents last year and had to redo everything. Fidelity has a pretty simple setup process if you're looking for a provider.

Don't forget about the safe harbor for quarterly estimated taxes! If you pay 100% of last year's tax liability (or 110% if your AGI was over $150k), you won't face underpayment penalties even if you end up owing more this year. This can be super helpful when your income is fluctuating between self-employment and W-2 work.

This is exactly the kind of transition situation I went through last year! One thing to watch out for - make sure you're tracking your business expenses carefully since you're self-employed. Things like home office expenses, equipment, software subscriptions, etc. can really add up and reduce your net self-employment income, which affects both your quarterly tax calculations and your solo 401k contribution limits. Also, since you're planning to become a W-2 employee in June, consider whether you want to make your solo 401k contributions early in the year or wait until closer to the tax deadline. If you contribute early, you'll have less cash flow for estimated quarterly payments, but you'll also start getting tax-deferred growth sooner. It's a balancing act based on your cash flow needs. One more tip - keep detailed records of when you transition from 1099 to W-2 work. This will make tax time much easier, especially for calculating the exact periods each income type applies to.