Solo 401k for Musician

QUESTION:

I’m a self employed musician – however I’ve never setup any sort of corporation for my business, I file taxes using only my social # and a schedule C.  Would I need to establish a corporation first before going through the solo 401k process? Or can I/you do the solo 401k setup as my business is structured currently?

ANSWER:

In short, a solo 401k plan can be setup if you file a Schedule C to report your income earned from being a musician.  Any entity type (e.g., sole proprietor, LLC, S-corp, C-corp., etc.) covering a business owner with no employees, or that person and his or her spouse can setup a solo 401k plan.
The self-employed musician wears to hats when sponsoring a solo 401k plan. He is both the employee and the employer, so both employee contribution and employer contributions up to the annual limits may be made to the solo 401k plan. The solo 401k contribution limits generally change on a yearly basis, and for 2020 the total maximum solo 401k contribution is $57,000 plus an additional $6,500 if you are age 50 or older.
If your self-employed business files a Schedule C, you must reduce the net income figure listed on your schedule C by 1/2 of self-employment income tax when calculating the solo 401k annual contribution, and you can use our on-line contribution calculator as well to determine your maximum contribution.
Contributions to the solo 401k can be flexible, so you are not required to make both or either contribution on an annual basis, and may not contribute in years that you don’t generate Schedule C income if you are a sole proprietor, for example.
No annual testing applies to the solo 401k because it is a plan for owner-only businesses. However, a Form 5500-EZ does apply once the fair market value (FMV) of the plan exceeds $250,000 in value.

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 20 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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