I am reviewing your website and am considering using your services to set up a Solo 401k.
I am currently doing contract work for Uber and Lyft and want to place all my taxable income in a Solo 401k to offset tax liability until retirement. My taxable income is well below the contribution limits set by the IRS.
I just want to confirm that the EIN is only for setting up the 401k and I do not have to have my income from Uber and Lyft paid to that EIN. Is this correct?
The EIN is for the solo 401(k), not
for your self-employed business. Under current conditions, drivers of both Uber and Lyft are treated as independent contractors
for tax reporting purpose (i.e., the drivers work independently).
The business owner wears two hats in a solo 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:
- Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
- $19,000 in 2019, or $25,000 in 2019 if age 50 or over ($18,500 in 2018, or $24,500 in 2018 if age 50 or over); plus
- Employer nonelective contributions up to:
- 25% after deducting 1/2 of self-employment tax from line 31 of schedule C
You must make a special computation to figure the maximum amount of elective deferrals and nonelective contributions you can make for yourself. When figuring the contribution, compensation is your “earned income,” which is defined as net earnings from self-employment after deducting both:
- one-half of your self-employment tax, and
- contributions for yourself.
Further, Uber and Lyft will each issue a Form 1099-MISC
in your name using your social-security number.
A solo 401k plan can be opened by an independent contractor (sole proprietor
). The employer or plan sponsor listed on the 401k plan documents would be the individual’s name. Also, the solo 401k plan would have its ow employer identification number which would be used for reporting under the plan. For more on the IRS view on the importance of using the solo 401(k) EIN for reporting purposes, please CLICK HERE
Do I need to establish a bank account with this EIN or can I fund the 401k from my existing account set up with my SS#?
The bank account for the solo 401k plan will need to be opened in the name of the solo 401k plan, and the bank will need to use the solo 401k plan’s EIN for reporting not your ssn nor your business EIN should you choose to also obtain an EIN for your sole proprietorship, which will be required once the plan is subject to the annual Form 5500-EZ
tax return filing requirement.
I have a full-time W-2 job with no retirement plan. Can I also contribute a portion of those earning into the Solo 401k and defer the taxes on those earnings as long as I don’t exceed the IRS limits?
Good question and no you cannot contribute to the solo 401k plan based on W-2 wages earned form your day-time job. Contributions to the solo 401k plan can only be based on net income from self-employment activity.