March 15, 2023
Are you a high-income earner looking for ways to minimize your tax burden? While many people are familiar with the tax-deferred savings offered by Solo 401(k)s, there are actually several lesser-known tax benefits that could help you save even more.
- The Solo 401(k) Allows for After-Tax Contributions
While traditional 401(k) plans limit contributions to pre-tax dollars, Solo 401(k)s allow for after-tax contributions as well. This means that high-income earners can contribute up to the annual limit with after-tax dollars, effectively lowering their taxable income for the year.
- The Solo 401(k) Offers More Flexibility for Roth Conversions
Roth IRAs are a popular way to save on taxes, but high-income earners are often limited in their ability to contribute. However, with a Solo 401(k), you can make after-tax contributions and then convert those funds to a Roth account. This allows you to take advantage of the tax-free growth offered by Roth accounts, regardless of your income level.
- The Solo 401(k) Can Help You Maximize Your Business Deductions
As a high-income earner, you likely have a number of business-related expenses that you can deduct from your taxes. With a Solo 401(k), you can contribute up to 25% of your net self-employment income, which can help you maximize your business deductions while also saving for retirement.
By taking advantage of these lesser-known tax benefits of 401(k)s, you can minimize your tax burden and save even more for retirement. Consider speaking with a financial advisor or attending a tax seminar to learn more about how a 401(k) could benefit you, your business, and your family for generations to come.
I am Seth Rosenberg, CFP®, CLU ®, LUTCF, GFS® reminding you that Taxes Are Overrated™ .