9-5 and a Side Hustle that's growing

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CyberGuy
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Joined: Sun Nov 12, 2017 2:42 pm

9-5 and a Side Hustle that's growing

Post by CyberGuy » Sun Nov 12, 2017 2:56 pm

Bogleheads,

I am in my 30s, non-married and no children. I currently have a normal 9-5 job, which pays me approximately 100k a year and a side hustle that over the last couple years has grown into 75,000-100,000 a year annual income stream. I am currently maxing my HSA, 401k and traditional IRA accounts at my 9-5. These are currently invested using the 3 fund portfolio strategy.

Are there any additional tax advantaged investments i could also be making through my side gig, which is a registered S-Corp that I own? Or am I already at the max due to my current contributions?

Thanks in advance for your help and the great advice i have learned over the years reading this website.

BogleWogle
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Joined: Tue Sep 26, 2017 9:40 pm

Re: 9-5 and a Side Hustle that's growing

Post by BogleWogle » Sun Nov 12, 2017 4:41 pm

Solo 401k might be an option assuming you don’t lose out on any matching from your 9-5 by reducing those contributions.

https://www.irs.gov/retirement-plans/on ... 401k-plans

Out of curiosity, what’s the side hustle?

CyberGuy
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Joined: Sun Nov 12, 2017 2:42 pm

Re: 9-5 and a Side Hustle that's growing

Post by CyberGuy » Sun Nov 12, 2017 8:14 pm

I work in the IT area. both my full time job and side business.

richmondam
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Re: 9-5 and a Side Hustle that's growing

Post by richmondam » Sun Nov 12, 2017 8:20 pm

I’m in a similar situation to you. I would setup a solo 401k per other poster. Then you can contribute an additional 25% if your side hustle salary from the s Corp as an employer contribution. You would just need to stop the 401k from the 9-5 so you don’t hit the max. I’m looking for tax shelters as well so will be curious if there is anything else. I’ve hear of defined comp plans once you have employees but those take some effort to administer.

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rickparks
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Re: 9-5 and a Side Hustle that's growing

Post by rickparks » Sun Nov 12, 2017 8:37 pm

I don’t have the answer, but would a SEP IRA be easier for OP rather than a Solo 401k? I believe there is the same 25% of compensation limit with out having to stop the 9-5 401k contributions. He would have to remember not to go above the total max contribution of $54k for this year (between the 18k 401k, employee 401k matching, and his SEP IRA contributions).

Lafder
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Re: 9-5 and a Side Hustle that's growing

Post by Lafder » Sun Nov 12, 2017 10:16 pm

Solo401k allows more contribution for the same income since you contribute as employer and employee with a solo401k, not with a SEP. It is not that much more paperwork to set up. You must not have any non spouse employees.

Fidelity is better than Vanguard for a solo 401k due to lower ERs and allowing other retirement accounts to be rolled in.

Congrats on the side business growing. I would be sure you check with an accountant if any taxes need to be paid along the way to prevent late fees or penalties as well as any other things you need to do as a business such as business license, tax ID (sorry if obvious :)).

lafder

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Veiled
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Re: 9-5 and a Side Hustle that's growing

Post by Veiled » Sun Nov 12, 2017 10:21 pm

Congrats! SEP-IRA also doesn't allow backdoor Roths without the pro-rata rule, should OP's income grow significantly with this side hustle.
Pardon me as I read these one hundred and fifty-seven SP vs LLC vs Scorp threads...

richmondam
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Joined: Thu May 04, 2017 3:35 pm

Re: 9-5 and a Side Hustle that's growing

Post by richmondam » Mon Nov 13, 2017 12:31 am

@rickparks - I thought you cannot exceed self-funded $18,000 cap across 401K plans, which is why I thought you would need to stop the 9-5 401K. The 54K max is counting the employer contribution, let me know if I'm not correct in that thinking.

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Duckie
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Re: 9-5 and a Side Hustle that's growing

Post by Duckie » Mon Nov 13, 2017 5:12 pm

richmondam wrote:I thought you cannot exceed self-funded $18,000 cap across 401K plans, which is why I thought you would need to stop the 9-5 401K. The 54K max is counting the employer contribution, let me know if I'm not correct in that thinking.
You're correct that the $18K employEE contribution limit is spread across all 401k plans (also 403b, TSP, and SIMPLE IRA). That $18K, any employER contribution, and any after-tax amounts are part of the $54K limit.

But a solo 401k can have a separate $54K limit including any employEE contributions (not in the OP's case), employER contributions of ~20% of net earnings (same as a SEP IRA), and any after-tax (not Roth) contributions. Depending on income and plan rules (whether an after-tax option exists) the OP could possibly contribute $54K to his W-2 401k and another $54K to his solo 401k.

wije
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Re: 9-5 and a Side Hustle that's growing

Post by wije » Mon Nov 13, 2017 7:28 pm

CyberGuy wrote:
Sun Nov 12, 2017 2:56 pm
a side hustle that over the last couple years has grown into 75,000-100,000 a year annual income stream.
I'm sure this is the wrong board to ask, but I'm curious what this lucrative "side hustle" is! :greedy

Spirit Rider
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Re: 9-5 and a Side Hustle that's growing

Post by Spirit Rider » Mon Nov 13, 2017 7:54 pm

CyberGuy wrote:
Sun Nov 12, 2017 2:56 pm
I currently have a normal 9-5 job, which pays me approximately 100k a year and a side hustle that over the last couple years has grown into 75,000-100,000 a year annual income stream.

Are there any additional tax advantaged investments i could also be making through my side gig, which is a registered S-Corp that I own?
Not a question you asked, but are you aware that an S-Corp in such a situation is likely counter-productive?

With the total of your W-2 SS wages and 92.35% of your net business profits > $127, 200, you will likely pay more in FICA than you would have in SE taxes. Not to mention the extra state fees and/or taxes, payroll costs and tax preparation and filing costs.

Also, your S-Corp employer contribution is limited by your W-2 wages. While self-employed employer contributions are only limited on the total of your net self-employed earnings.

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