Do I Need an LLC to have a Solo 401K

Here's the problem. I'll take my take at it, Matt. With a LLC or a sole proprietor, you're paying self employment tax. Not good. And whatever your net income here, it's going to play in the calculation as to how much you can put in the 401k this year it's 19,500 plus 25% of your profit or your W2 or your income. Well by the time you start running the numbers on this, your self employment tax is going to be through the roof. We find it time and time again. If you want to do a solo 401 and you got the money to do it, nine times out of ten you're going to want to make the S election along the way. I don't know who's telling you an S corp is bad, but I'm telling you in this scenario the s corp 401k usually your money ahead. So have someone help you run the numbers on that.

Yeah, and you can just add an S election to the LLC and totally fine. But you don't have to again for solo K qualification purposes you can be a sole proprietorship, you don't have to have an llc, you could just be, you know, Susan Smith sole proprietorship and you will get an EIN under that and you can go set up a solo 401k under Susan Smith sole proprietorship with that EIN rollover old retirement plan money, put new contributions in. Now the one difference though on anybody that's a sole proprietor, whether you're just a sole proprietorship with an EIN or you've got an LLC that is single member that flows down, you file as a sole proprietorship. The one difference is you can put in the 19,5 per year, that's for 2020 and 2021 on your self employment income plus 20% of the self employment on your. When you're an S corp you get to put more in, you get to do 19.5plus 25% of your W2 and so you only get the 20% factor on the sole proprietorship or also even if you're just doing a partnership, which we generally wouldn't recommend either. But that's just a little technical rule on the company putting in money. 20% in the sole proprietor or partnership versus 25% for those in an S corp or C corp, which we don't love as you probably know, if you listen to Mark at all, we love the S Corp.

So Jim, what you're going to want to do with your advisor is going to say under option A, I'm a sole proprietor LLC, whatever you want to say, sole prop LLC. Here's what my profit is that I expect in 2020. How much can I put in a 401k? So you're going to just do this simple. How much can I contribute? Now that's question one. Q1 is how much can I put in? Question two is how much is my self employment tax going to be? Then you're going to go over here to your same advisor on the whiteboard. Or we do this on the phone with you and go, okay, if I'm an S corp, what's my profit going to be? And as I do that, and by the way Jim, you can retroactively become an S Corp back to 1120 so we can file an election. We charge 200 bucks. So now you're an S corp and you say okay, what's my W2 and what's my pass through? And you get the pass through deduction as well. And then you say now how much can I put in a 401k and what is my self employment tax? You're going to ask the same two questions. This is what we knock out in at least a half hour to 40 minutes. We're already there and you're going to go, huh, I put the same amount in my 401k but I'm paying lower. Self employment tax. Happens every time. So Jim, run the numbers with your advisor.