Advice: W2 or 1099 for IRA & 401K reasons, need math help

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keaton
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Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by keaton » Thu Aug 10, 2017 5:10 pm

This will probably be pretty quick for most of you, thus why I am posting the idea.

Both my wife and I are W2 employees, yet in our industry we can go to a 1099 with ease. I choose W2 at first in order to save on SS benefits, although going forward our income fluctuates greatly, thus SS might not be worth investing in?

Joint income at 148K gross, and we save 80%-90% of that, so our IRAs are maxed. We pay only federal tax rate.

My question is, if we switched to a 1099, and started a sole proprietorship and did a SEP-IRA or a 401K, would that be worth the hassle over a W2 structure? My thought, was more money into tax advantaged accounts and not adding to SS, as SS might never work for our lifestyle due to extreme income fluctuations.

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Duckie
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by Duckie » Thu Aug 10, 2017 5:29 pm

keaton wrote:My question is, if we switched to a 1099, and started a sole proprietorship and did a SEP-IRA or a 401K, would that be worth the hassle over a W2 structure?
If you have no employer retirement plan available at your job, then going 1099 would greatly increase your tax-sheltered retirement accounts and to me would be worth the hassle.
My thought, was more money into tax advantaged accounts and not adding to SS, as SS might never work for our lifestyle due to extreme income fluctuations.
When self-employed you will still have to pay into Social Security/Medicare. It's called the Self-Employment Tax and you must file Schedule SE when you file your taxes.

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celia
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by celia » Thu Aug 10, 2017 5:37 pm

When you report self-employment income, you have to pay YOUR portion plus that of the EMPLOYER. You do not get out of it, but rather pay almost twice as much!

In addition, you just can't go from W-2 to 1099 at will. The IRS has specific criteria they look at to see if you are 1099 eligible. Here is some discussion on it:.
http://tentiltwo.com/running-your-busin ... ifference/

In addition, how will you get medical insurance if you don't get it from your employer?

ralph124cf
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by ralph124cf » Thu Aug 10, 2017 5:59 pm

It may be possible for one of you to maintain a W-2 job for family medical insurance.

For a 1099, if at the same pay, you will be losing on the employer SS payment, but this may be offset by the additional retirement contributions.

There are many industries where a person can reasonably be classed as either an employee or a contractor. The real non-negotiable biggie is if you can also work for other companies. If your current employer would prohibit this, then you are an employee, not a contractor.

Ralph

keaton
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by keaton » Sat Aug 12, 2017 10:49 am

I overlooked the full SS payment with self employed, that does take a hit to the total net income, with a 1099.

SO, the question is, at 148K filing jointly with very minimal deductions, be worth it over a W2? Having to pay the other half of SS in order to contribute more via a SEP-IRA, thoughts?

Finance-MD
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by Finance-MD » Sat Aug 12, 2017 12:14 pm

If self employed, you could also open your own pension plan, e.g. a 'cash balance' pension. May not be that beneficial at your income as the fees can be high, but they can open up a lot more tax deferred, tax protected space above your SEP/401k.

TIAX
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Re: Advice: W2 or 1099 for IRA & 401K reasons, need math help

Post by TIAX » Sat Aug 12, 2017 12:19 pm

What benefits does your employer offer for W2 employees that it doesn't for 1099 employees?

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