Tax Implications of Solo 401(k) for Uber Driver Income after Mileage Deductions?

Thanks for the detailed explanation! So to make sure I understand correctly - I can contribute up to $22,500 for 2023 as an employee deferral, but that contribution has to come from my net earnings after deductions, not my gross? And then on top of that, I can add another 25% of my net income as the "employer" contribution? Also, do you know if there's a minimum amount of income I need to have to open a Solo 401(k)? My earnings vary a lot from month to month.

Yes, your employee contribution (up to $22,500 for 2023) comes from your net self-employment income after deductions. However, you can contribute up to 100% of your net earnings this way, until you hit that $22,500 annual limit. Then yes, you can add the additional employer portion of up to 25% of your net income. There's no specific minimum income requirement to open a Solo 401(k). The variable nature of your Uber income doesn't disqualify you. Just be aware that your total contributions are limited by your actual net self-employment income for the year - you can't contribute more than you earn.

Does this tool work for other types of self-employment income too? I do photography on the side along with some Uber driving, and I'm completely lost when it comes to figuring out retirement contributions.

I'm skeptical about these tax tools. How accurate is it really? Last time I used a tax service online it missed a bunch of deductions my accountant later found. Does it actually understand the specific rules for rideshare drivers?

Yes, it works for any type of self-employment income including photography. It lets you input multiple income streams separately, so you can see how much you can contribute from each type of business. It's great for people with mixed income sources. As for accuracy, I was skeptical too. What made the difference for me was that it's specifically designed for gig workers and self-employed people. It actually understands rideshare-specific deductions and the unique tax situations we face. I compared its results with what my accountant calculated and they matched up perfectly. Unlike general tax tools, this one knows the nuances of how mileage deductions affect retirement contribution limits.

How does this actually work? I don't understand how a third-party service can get you through to the IRS faster than calling yourself? The IRS phone system is the same for everyone, right?

This sounds like BS honestly. The IRS is understaffed and overwhelmed - no way some random service can magically get you through. And why would you need to call the IRS anyway? This info is all available on their website or from a tax professional. Sounds like a scam to me.

It works by using an automated system that navigates the IRS phone tree and holds your place in line. When they reach a human agent, you get a call to connect with them. The IRS phone system is the same for everyone, but Claimyr has figured out how to navigate it efficiently and hold your place without you having to stay on the phone for hours. I understand your skepticism - I felt the same way at first. But the IRS website doesn't address every specific situation, especially for gig workers with multiple income streams. Tax professionals often give conflicting advice, which is exactly what happened to me. I needed definitive answers straight from the IRS about how to calculate my specific contribution limits with my variable Uber income. I tried calling myself multiple times and never got through after 2+ hour waits. Claimyr had me talking to an agent in under an hour. It's not magic - it's just efficient technology for navigating an inefficient system.

That's a great point I hadn't considered! Since my tax rate is probably already pretty low after deductions, maybe the Roth option would be better long-term. Does choosing Roth change any of the contribution limits or the way the "employer" portion works?

The employee contribution limits remain the same regardless of whether you choose Traditional or Roth - still $22,500 for 2023 (or $30,000 if you're 50+). You can even split your employee contributions between Roth and Traditional if you want. The employer portion (the 25% of net income contribution) can only be made as Traditional (pre-tax), not Roth. This is a limitation of how the Solo 401(k) rules work. So even if you choose Roth for your employee contributions, your employer contributions will still provide a current-year tax deduction.

The big advantage of Solo 401(k) over a regular IRA is the much higher contribution limits. For 2023, an IRA only allows $6,500 in contributions ($7,500 if you're 50+). With a Solo 401(k), you can contribute up to $22,500 as employee PLUS the employer portion of up to 25% of your net income. In terms of actual tax savings, if you're in the 22% tax bracket, contributing $22,500 to a Solo 401(k) would save you $4,950 in federal income tax versus only $1,430 max with an IRA. Plus many states offer additional tax savings. It does require more paperwork, but the tax benefits can be substantial if you're earning enough from Uber to make significant contributions.

Thanks for breaking it down like that. The higher contribution limits do sound worth the extra paperwork, especially since I'm trying to catch up on retirement savings. I didn't realize the difference was that dramatic between IRAs and Solo 401(k)s. I'll look into setting one up before the end of the year. Do you know if there's a minimum amount I should be planning to contribute annually to make it worthwhile?

There's no official minimum, but I'd say if you can contribute at least $3,000-$5,000 annually, it's probably worth setting up a Solo 401(k) over a regular IRA. The setup and maintenance costs are usually minimal (many providers like Fidelity and Schwab offer them for free), so even smaller contributions benefit from the higher limits and flexibility. Keep in mind you can also adjust your contributions year to year based on your Uber income. In good earning years, you can max out the employee portion, and in slower years, you can contribute less. That flexibility alone makes it worthwhile for gig workers with variable income like us Uber drivers.

Great questions! You don't need to wait until tax season to start contributing - you can absolutely estimate your net earnings and make contributions throughout the year. I'd recommend tracking your monthly net income after mileage and other deductions, then contributing a percentage of that regularly. You can always adjust up or down as the year progresses. For the Solo 401(k) vs SEP-IRA question - Solo 401(k) is generally better for gig workers like us. With a SEP-IRA, you can only contribute as the "employer" (up to 25% of net income), but with Solo 401(k) you get both the employee contribution (up to $22,500) AND the employer portion. This means much higher total contribution limits. SEP-IRAs are really designed more for people who have employees, which doesn't apply to solo gig workers. I'd suggest setting up automatic transfers based on your average monthly earnings - even if some months are lower, you'll be building the habit and can always increase contributions during your busier periods!

Great questions! The 25% employer contribution is calculated on your total net self-employment earnings before any retirement contributions. So in your example with $1000 in net weekly earnings, your employer contribution would be 25% of the full $1000 (so $250), not calculated on the remaining amount after your $400 employee contribution. However, there's a small technical adjustment - the actual calculation is slightly less than 25% because you have to account for the employer portion of self-employment taxes. It usually works out to around 20% of your net earnings in practice, but the tax software or Solo 401(k) provider will handle that calculation for you. For quarterly estimated taxes, you're smart to be thinking about this! I'd recommend calculating your estimated taxes based on your net earnings AFTER accounting for your planned Solo 401(k) contributions. So if you're planning to contribute $400 weekly as employee deferrals, reduce your taxable income by that amount when calculating your quarterly payments. Just make sure you're actually making those contributions consistently so you don't end up owing penalties. The safest approach is to pay estimated taxes based on 100% of last year's tax liability (110% if your AGI was over $150k) - that way you avoid underpayment penalties even if your retirement contribution strategy changes during the year.

This is exactly the kind of practical advice I wish I'd had when I started! The automatic transfer idea is brilliant - I've been struggling with the irregular income aspect of this. Some weeks I make great money and think I can contribute a lot, then other weeks are slow and I'm scrambling. Quick question about the loan option you mentioned - how does that work with Solo 401(k)s? I thought retirement accounts had penalties for early withdrawal, so I'm curious how loans are different. Also, do most providers offer this or is it something specific you have to look for when choosing where to set up your Solo 401(k)? The seasonal income point really resonates too. December was amazing with all the holiday parties and airport runs, but January has been pretty dead. Having a systematic approach like yours would definitely help smooth out those ups and downs.