I am embarking on a new side hustle, which consists of contract work that is upfront few months of work, then paid through royalties. I want to shelter as much as I can through a Solo 401k (I haven't opened one yet), but at the same time, want to keep the complications to a minimum, because I have enough headaches in my life (I have a lot of health issues I'm dealing with at the moment).
- So I'm 29, single, no kids, working and living in NYC. My day job is in IT, and my side hustle is in education.
- Multiple disabilities from random medical conditions, but work full-time with full benefits. But afraid might need to scale down from working full-time to part-time, or going freelance/contract when I get diagnosed with the next "big thing."
- I'm an absolute side-hustle-paying-taxes newbie.
- My questions are with Solo 401ks.
- I just recently received a promotion and raise at my day job last week, so my "new" salary for 2019 will be $75,000.
- For 2019, I plan on maxing out my HSA, Roth IRA, and Company 401k.
- For 2018, I've maxed out Roth IRA, HSA, and by end of the year would've put in a little over $9,000 into 401k.
- I don't need the side hustle $$$ to live on, so I don't really need to spend any of it. So would like to find ways to protect as much as I can, for future use (in case I fall into full disability and can't work full time anymore).
- I recently started a contract creating online courses, where I get $2000 as royalty advance, and once the course is live and the $2000 is "paid off," I will start getting monthly checks for the royalties.
- I am slated to create 4 of these courses (as of right now), and the first of them will be live around next March.
- Income from the side hustle in 2019 could be anything from $5000~$12,000 (or more) per course, and potentially 2-3 of them running at once. It's hard to tell until the course(s) are released.
To protect as much as I can of my side hustle (NYC taxes are grueling!!), I am considering Solo 401k (I was told SEP IRA might get in the way of future Backdoor Roth, if I choose to do it, so I decided Solo 401k is probably the better way to go). I didn't get anywhere close to maxing out my Company 401k this year, so I think I can dump in most of the $1000 (minus the required taxes/social security/etc.) into the "employee" contribution portion in the Solo 401k. (Please correct me if my understanding is incorrect.)
- Is my conclusion correct that the $1000 I received this month can go 100% into the Solo 401k's employEE space for 2018, because I still have $7k left "there" since I only put in $9k into it this year? (Minus taxes and expenses, of course.)
- For 2019, since my "employee" space is going to be filled up with my company 401k, I would only be able to put in 25% of my side hustle income (after fees/taxes/social security/expenses/whatnot) into the employER side?
- And I should do this dump at the END of 2019 so that I am not going over the 25% (I heard there are penalties if I put in too much)?
- Where are the recommended places to open Solo401k? I think I saw that Fidelity had lower fees than Vanguard? (Almost everything I personally hold is at Vanguard.)
- Is there a recommended reading for complete newbies trying to break in to freelance/side hustles and the tax implications? I keep on seeing things like "Schedule SE form" and "199A Rule," and I'm afraid I'm missing A LOT of things I should figure out BEFORE I open a Solo 401k.
If there are any books or resources you recommend as kind of like "here's the basics you should know about freelancing/self-employment/side hustling," I am ALL ears.