How Much Can I Contribute To My Self-Employed 401k Plan?

A self-employed 401(k) plan is a great way to save for retirement if you are an entrepreneur or solopreneur. A self-employed 401k plan is also know as a Solo 401(k) plan. This article will discuss how much you can contribute to your self-employed 401(k) plan.

For 2023, the IRS says you can contribution up to $66,000 to a self-employed 401(k) plan. The amount should go up by $500 – $1,000 every one or two years.

For 2023, the $66,000 self-employed 401k plan limit consists of $22,500 from the employe and $43,500 from the employer. Therefore, to contribute the maximum to your self-employed 401k plan, you must pay yourself enough and have high enough operating profits. You can't just contribute whatever you want from the employer contribution.

The employer can generally contribute roughly 20% of its operating profits to the employer portion of the 401(k) plan. Therefore, in order to contribute the maximum employer contribution of $43,500, the company would need an operating profit of at least $217,500 ($43,500 dividend by 0.2).

If you’re at least age 50, then you can make an additional $7,500 catch-up contribution.

Self-Employed 401k Historical Contribution Limits

For those of you who are self-employed or side-hustling with a full-time job, this article will help you figure out how much you can contribute to your tax-deferred Solo 401k with an example.

You can't just write a check for the maximum 401(k) contribution amount. There's a formula you need to follow based off your operating income. I'm personally shooting to contribute $100,000 a year pre-tax in a Solo 401(k) and SEP-IRA given I am an employee and a freelancer.

Remember, if your employer has you in a 401k plan, you can open up a SEP-IRA if you're side hustling. And if your employer has you in a SEP-IRA, you can open up a self-employed 401k to contribute more pre-tax dollars to your retirement.

If your employer has you in a 401k plan, you can also open up a self-employed 401k. However, it wouldn’t make sense to do it because the total employee contribution is limited to $22,500 across all your 401k plans for 2023. The contribution limit goes up by $500 every couple years on average.

Here's a historical 401(k) contributions limit plan for employees and employers with the catch up contributions amount if you are over 50. You can check out more of the 2023 retirement contribution limits here.

historical 401(k) contribution limits through 2023 and how much you can contribute to a solo 401(k) plan

Self-Employed 401k Plan Contribution Calculation

A year after I left my corporate job in 2012 I opened up a self-employed 401k aka Solo 401(k) plan to keep my 401(k) contributions going as a sole proprietor. If you're an independent contractor with no full time job, no employees, and no company sponsored 401k, I suggest you do the same if you want to defer taxes and save more for your retirement.

Little did I know that contributing the maximum $17,000 in 2012 was not really the maximum. The employee contribution is only one part of the plan. There was also the profit sharing side of the equation from the employer as you see in the chart above and the example below.

Let's say you make $100,000 in gross income (revenue) as an independent contractor and after $30,000 in expenses, you’re left with $70,000 in operating income before 401k contributions and taxes.

Here is how much you can contribute back when the max 401(k) contribution was $18,000.

Solo 401k Contribution Calculation Example

Solo 401(k) Contribution Equation

You can use this example to easily calculate your own contribution amount after you've calculated your Operating Profits. Just remember 92.35% X 15.3% X 50% to apply to your operating profits and then multiply by the result by 20% to get your employer profit sharing contribution.

Contributing $31,010 to your self-employed 401k plan is quite a hefty sum that will quickly add up to a large retirement nest egg over time. You are essentially saving 31% of your gross income or a hero worshipping 41% of your operating income.

Doing some simple math, you need to make an operating income of at least $180,000 after the 1/2 Self-Employed tax deduction to be able to contribute $36,000 in profit sharing + $18,000 employee contribution to equal the maximum $54,000 a year. Easier said than done. But an operating profit figure to shoot for all the same.

Self-Employed 401(k) Plan Details

Note: The reason why self-employment tax for a sole proprietor is based on 92.35% of self-employment income instead of the whole amount is this:

1. 92.35% = 100% – 7.65% employer's portion of SE tax (6.2% social security tax + 1.45% medicare tax)

2. Normally, an employer incurs a 7.65% expense on each dollar paid to an employee.  However, a sole proprietor does not pay himself a salary so he can't deduct the 7.65% of SE tax on his Schedule C.  The SE tax gets deducted directly on the form 1040 instead of Sch C.  But for the sole proprietor the SE tax is a real expense, so that's why the formula shows a reduction of 7.65% to the SE income.

Don't Make These Common Self-Employed 401k Contribution Mistakes

1) Only contributing up to the maximum by the employee. Don't forget the profit sharing portion in #2 if you have leftover operating profits.

2) Calculating the profit sharing contribution based off gross income before operating expenses instead of operating profits. Otherwise, you will over contribute.

3) Not deducting from operating income the 1/2 SE tax deduction, which also leads to over contributing.

Excess Self-Employed 401k Contribution Withdrawn by April 15

If you over-contribute to your 401k, you have until April 15 of the next year to withdraw the excess amount. Your employer must amend your W-2 to show the returned amount as wages. Thus your gross income will be higher and you’ll pay more taxes.

For example, assuming your 401k portfolio made money in 2022. The earnings from the excess contribution will be taxable income for 2023.

What a pain. This is why I recommend everybody round DOWN the amount they get to contribute to be safe. If the calculations say you can contribute $36,800, just contribute $36,000 to be safe.

Excess Contribution NOT Withdrawn by April 15

Source: IRS Databook 2015
Audit percent by incomee. Source: IRS Databook 2015

So what happens if you don’t notice that you’ve over-contributed to one or more 401k plans until after April 15? In this situation, the excess contribution is taxed twice, once in the year when contributed and again when distributed (the next year).

Also, the earnings from the excess contribution will be taxable income for the following year. If the mistake is not corrected, then the IRS may disqualify the entire 401k plan retroactive to the beginning of year 1. This results in the employee’s entire 401k account balance to become income to the employee which would have massive adverse tax consequences.

But the main reason why you want to be more conservative in your self-employed 401k contribution is not the fine. Th main reason is the stress of getting an IRS audit letter in the mail. It will also take time to amend your tax returns. This process can take hours.

I'd much rather miss out on contributing an extra $1,000 in my self-employd 401k than go through the torture of dealing with the IRS.

Remember, when in doubt, round down your self-employed 401k contribution amount.

Deadline To Contribute To A Self-Employed 401k?

The employee deferral contribution must be elected by December 31 of the year you want to make the contribution. However, some 401k third party administrators (TPA) may allow you to set up your 401k plan now and backdate your election. The actual contribution can be made up to the tax filing deadline including extensions.

Therefore, the contribution for your 2022 self-employed 401k can be made as late as October 15, 2023 if that’s the date you file your tax return. To be safe, after your CPA has calculated your self-employed net income, give your financial advisor one month to work with the TPA to set up the 401k plan.

When Should I Contribute To My Self-Employed 401k?

So long as you have revenue, you can start contributing the employee portion up to the maximum immediately. Contribute the maximum to your self-employed 401k during the same calendar year. It's up to you whether you'd like to contribute in bi-weekly, monthly, quarterly, bi-annually, or random lump sum increments.

For the employer profit sharing portion of your self-employed 401k contribution, you should probably wait until after you do your taxes to figure out your profit and loss. You can always conservatively guesstimate your employer profit sharing contribution if you don't feel the need to be exact.

Just remember the money you do contribute to your self-employed 401k can't be touched until age 59.5. You don't have to contribute the maximum if your liquidity needs are high.

Start Side Hustling To Contribute To A Solo 401(k)

I hope everyone now knows how to calculate what they can contribute to their self-employed 401k plan. Go over the example a couple more times if you are still confused. And check with an accountant if you want to be extra sure. Make sure you don't contribute too much to your self-employed 401k plan. If you do, it can be a pain to unwind the contribution.

Given the benefits of being able to contribute to a self-employed 401k plan, I highly recommend you start your own online business. Not only can you contribute your operating profits to a tax-deferred self-employed 401k plan, you can also deduct business expenses.

Be A Consultant Or Freelancer To Contribute To A 401(k)

If you don't want to start an online business that can't be shut down during the coronavirus pandemic, be a rockstar freelancer. Being one allows you to contribute to a solo 401(k) as well.

If you are only a W-2 employee, your 401k contribution is capped at the maximum a a year + any 401k employer match (average is 3% of base salary). Unfortunately, very few employers are generous enough to contribute ~20% of their operating profits to you.

For those who work at startups or money-losing organizations, you are SOL in terms of receiving any profit sharing. You'll get paid below market rate, have options likely not worth what you hope, and get minimal retirement benefits.

At least you'll be doing exciting work that you enjoy. Do not underestimate the many benefits of having a steady day job. If you work at a money making organization, you should inquire about your employer’s 401k match and profit sharing plans.

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Achieve Financial Freedom Through Real Estate

In addition to contributing to a solo 401(k), also consider diversifying into real estate. Real estate is my favorite way to achieving financial freedom because it is a tangible asset that is less volatile, provides utility, and generates income.

In 2016, I started diversifying into the Sunbelt to take advantage of lower valuations and higher cap rates. I did so by investing $954,000 so far with real estate crowdfunding platforms. My goal is to diversify my real estate exposure and earn more 100% passive income.

Take a look at my two favorite real estate crowdfunding platforms. Both are free to sign up and explore:

Fundrise: A way for accredited and non-accredited investors to diversify into real estate through private eFunds. Fundrise has been around since 2012 and has consistently generated steady returns, no matter what the stock market is doing. For most people, investing in a diversified eREIT is the way to go. 

CrowdStreet: A way for accredited investors to invest in individual real estate opportunities mostly in 18-hour cities. 18-hour cities are secondary cities with lower valuations, higher rental yields, and potentially higher growth due to job growth and demographic trends. If you have a lot more capital, you can build you own diversified real estate portfolio. 

For more nuanced personal finance content, join 60,000+ others and sign up for the free Financial Samurai newsletter. Financial Samurai is one of the largest independently-owned personal finance sites that started in 2009.

65 thoughts on “How Much Can I Contribute To My Self-Employed 401k Plan?”

  1. I have been calling around asking the usual suspect brokerage firms of whether they have the feature of an in-plan Roth conversion. Is anyone using this or aware of a brokerage that does this?

    I’m specifically asking about after tax dollars (not Roth contributions) that are converted to a Roth within a plan. This is a huge advantage if you are already hitting the limit on deferral or Roth contributions. It prevents all the gains with your after tax dollars from being taxed from the get go.

    The only place I can find as of April 2021 is mysolo401k. If anyone has experience with this 3rd party, please let me know. Apparently Fidelity accepts a 3rd party plan documents to perform this feature however you need to pay the 3rd party for their plan.

  2. JustinOrdinaryGuy

    Solo 401(k)s are not ERISA plans, thus do not fall under the guidance of the Department of Labor. Deadline for employee contributions is the tax filing deadline. Please see Publication 560.

  3. Confused about order of contributions: I make between $35-40k a year with main career, I paid off debts couple months ago and now save half of my income, and am self-employed. $18k is basically close to what I’d save anyway. While I’m hoping to save a more than $18k a year in the future (I make $3-4k a year the last couple years with bank bonuses) I’m still unclear on whether I should save into solo 401k/SEP IRA first, or HSA, or Roth? I expect income to stay fairly similar, I am lucky enough to have 4 days off a week apart from rando side hustle music gigs, like to keep my sanity and live life both now AND later.

  4. I’m trying to find information on if you can max out an i401k at the 56k and then contribute 5500 to a generic IRA (I know Roth is better but I cant convert old IRA to Roth IRA without a heavy conversion fee). Is it legal to max out both?
    Do you have an article about this?

  5. Does the deduction of the employer part of solo 401k come off of the schedule c reducing SE tax at all, or does it only come off of the net income taxable income on form 1040? In other words, does it save you in SE tax?

    1. William LIss

      Article lacks information on self employed running at or near no profit.
      If I bring my operating income down to $36k. Being over 50 years old can I contribute $18k o my 401(k) plan as the employee, $9k as the employer and $6k in catch-up contributions?
      In other words bring my income to nearly nothing?

  6. Thanks for the article!

    With a 401k, you can roll it over to an IRA when you leave your employer. Can you explain how to rollover your individual 401k to an IRA?


  7. Very good article. Thanks for writing it.

    My wife have 1099 income of about $25k. Net income after subtracting expenses is $24k. She does not have any other income and she is 50+ of age. To my understanding she can contribute $18.5k + $6k = $24.5k towards her own contributions to solo 401k. The plan contribution can be just $500 and so she will be limited to contributing max up to $25k (1099 income) to solo 401k.

    If my math correct? Is she able to contribute $25k, $24k or ($24k – 1/2 of SE Tax)?


  8. Sam, I have a full-time job since August 2017, which the employer was once a client, and I still have some clients on the side. My employer does not have a 401(k) and I want to take advantage of the Solo 401(k). How much can I contribute? Can it be 100 percent of my side hustle income or is it a percentage of my profit? Additionally, since my employer does not offer a 401(k) plan, can I contribute a percentage of my W-2 income, or must it only be based on my side hustle income?

  9. Hi, I’ve recently started my own business where I am an employee of my own company. Both my husband and myself are employees, while it’s a side gig for him, it’s my main gig. The company is on track to bring in 130k-150k gross. My tax consultant told me to put myself on payroll so I’m personally making 60k and was hoping to contribute excess company income to my i401k. Seeing how I’m paying taxes differently, I’m not sure your formula above applies?

    1. If you are an employee — which is what you are describing — then the whole article doesn’t apply to you. The general idea does (start a 401(k) plan for your business), but the specifics do not.

  10. Great article!

    a quick question

    At the present time I have a job that is not offering 401K and I dont have any other side hustle either but income siurce in the form of dividends, rental income, interest from p2p lenders etc)

    That said can i open a solo 401K with after tax money (either from my pockets or from such dividends, rental income) with the sole purpose of tax defferal?


  11. This was a fantastic article. I loved seeing the calculation details. Could you expand on this for how much can be deferred by a husband and wife working a side business? Specifically, what if the husband has a W2 job with 401k, and also has a side business with his wife. How much can they both save in pretax accounts? I’m sure many people would like to see this.


  12. I am independent contractor and have LLC just for myself. I have solo 401k account with Fidelity. I have been contributing 4.5k per month for last 8 months because my operating income should be close to 180k. So far I have contributed 36k out of 54k for 2017. Ideally I can still contribute 18K to make it 54K.Two quick questions:

    1. What does “employee deferral”mean ?
    2. Do you have till 12/31/2017 to contribute to solo 401k or till 04/15/2018 ?

  13. Thanks for this post. It was really helpful. I have one question that I can not figure out… Can I use my W-2 income to pay into my individual 401k?

  14. Gary Taylor

    Can you retire after 10 years with your 401k,and how due I find out how much entrance i get a year on my money my employer take out of my check. I’m 53 years old and I’m not really understanding how this work and I’m trying to figure out how much will be in my 401k in about ten years I only get about $26,000 a year can someone please help me with some answers

  15. Question about SEP contributions. I opened my SEP a couple of years ago when I was making about $25k on a 1099 job. This year I’m going to make less than $2k in 1099 off a very small side hustle. My gig became a W2 job and I’m going to jump into their 401k on May 1. Can I contribute to the SEP this year and if so, how much? Thanks!

  16. Jennifer duke

    My husband has a business that has had a loss several years in a row. He has recently taken a w2 job and I was wondering if I could offset that income by opening a solo k for him and using the w2 income to fund it?

  17. “If your employer has you in a 401(k) plan, you can also open up a Self-Employed 401(k), but it wouldn’t make sense to do it because the total employee contribution is limited to $18,000 across all your 401(k) plans.”

    It still makes sense if you want to execute a Mega Backdoor Roth since

    1) Most employers have 401Ks that neither allow non-deductible non-Roth contributions as it would cause them fail non-discrimination testing NOR in service distributions/conversions to Roth
    2) a SEP-IRA does not allow any employee contributions

    So the prospect of executing a Mega Backdoor Roth may be worth additional fees of solo 401k vs SEP-IRA

  18. Brian Chong

    Hi Sam,

    There’s also a Combo-K plan where you can put away up to $424K a year! It’s a hybrid plan that mixes 401(k), profit sharing, and cash balance plans. I’m setting up one now for a reader of yours.

    Maximum retirement contribution:
    @ age 35 = $127,400
    @ age 50 = $240,000
    @ age 65 = $424,000

    Brian Chong, CPA

    1. multimillionaire

      Yes, if you use this worksheet, then the employer contribution for the solo 401K is less than what Sam shows if he uses Schedule C as a sole proprietor to account for his expenses.

  19. You didn’t address it in the article, but am I correct in stating that you cannot contribute more than $18K as an employee to a 401k and a solo 401k combined in a given year?

    So if I contribute enough to get my employer match $5K per year to my regular $401k, I can contribute up to $13K to a solo 401K Plus an “Employer Match” of up to 20% of operating profits.

    That seems to be the best way to hack the situation, but I could be mistaken.

    1. Correct. $18K is the max YOU can contribute. $53,000 is the max you can contribute total across 401k plans. Meaning, the most your employer can contribute is $35,000 (your own profits or your employers). Most folks won’t have the problem of maxing out to $53,000, even with a side hustle. You don’t have control over what your employer can contribute. But you do have control over how much your own business/side hustle can contribute.

  20. Coming from a family/community oriented culture, when I first learned about 401(k), I was kind of puzzled as to why would someone put his money aside to an account, and do nothing with it for the rest of his life when he can:
    1. Start a business
    2. Invest in their kids(education, their business) who in return can pay them back much more when they succeed, and it’s a shared wealth.

    I’m tying this comment to your previous articles related to the Millenials and their relationship with finances and their parents.

    I understand that when you have reached a high level of financial success, your risk tolerance decreases. But that’s a very small minority of the population, for the rest of us who dwell closer to the median household income, that doesn’t seem to be the best option.

    Idk but being so obsessed about retirement investments, and expecting them to slowly grow just perpetuates a passive attitude and desire people have for an easy and average life. It makes them dependent on their salary job and 9-5 work lifestyle. Yes, it’s better than living paycheck-2-paycheck, but still far behind having your own business. Having $50K of disposable cash a year, you can easily start a business. Even if you have a business, you can still reinvest your profits back to your business.

    And what’s all this eagerness to reach financial freedom and retire early. Noone really retires at 40. You might take a break, but not really retire. If you’re the type of person that can make the type of money that can set you free, you’d surely not give up on your lifestyle and mission. If I have a goal to reach $1Mill worth of assets, I’m sure that once I reached it I’d strive for $5 or $10Mill goal. But, I might be wrong, I still have to get there myself.

    Having said all that, I’m investing 20% of my pre-tax paycheck to my 401(k). :P
    Thanks for sharing your knowledge FS

  21. Actually Sam, I calculate the amount that can be deferred into a solo 401K differently than you and yet conform to IRS rules. The IRS permits that the company contribute 25% of employee compensation to an employee’s solo 401k. So in your case, if my company earns 70,000 after expenses but before payroll taxes, I pay myself $65,000 on a W-2. The companies expenses are further increased by payroll taxes of $4,972.50. The company contributes $16,250 to my 401K and i contribute the max which if under 50 years of age is $18,000, for a total contribution of $34,250, or $3,240 more that the rule you are using. So you pay the same 15.3% to Uncle Sam one way or another but by cutting yourself a W-2, you can defer more $$ to your 401K and thus shelter more income. I’ve been using this formula or years and my accountant assures me it is IRS compliant.

    1. Ksil, so long as your accountant assures you are compliant, and you understand how the contribution works, that’s what matters most.

      The IRS is HAPPY with you because your are paying yourself basically 100% of your operating profits in the form of salary, which they get to collect payroll taxes from you.

      For those who have an S-Corp, many use the strategy of paying as SMALL a salary as possible to pay less Self-employment tax, and then distribute the rest, which doesn’t face the self-employment tax. A 50/50 max ratio is usually recommended.

        1. Exactly. How would you define “SMALL”?

          I’ve defined it as anything less than a 50/50 salary/distribution ratio.

          What if you have $30,000 in operating profits a year from your business. What is a small salary, for example? Who decides who lives or dies? Who decides whether you are handsome or not?

          1. Assuming that my net profit exceeds the maximum social security cap, I pay myself that cap in salary, which enables me to nearly max out the top allowable. My accountant has warned me as well that if My Sub S makes $150,000 after expenses, that I am playing with fire if I don’t pay myself a very healthy salary.

  22. Sam, I don’t believe it’s accurate that you cannot contribute to both an employer 401(k) and an individual 401(k). If you are an employee you can contribute up to $18,000 per year and if you have an individual 401(k) plan you can contribute a percentage of any self employed operating profits as Sam describes above. You can’t contribute more than $18,000 in “employee” contributions between the two plans.

    If anyone has authority to the contrary would love to hear it. Otherwise, would suggest that Sam adjust the post.

    1. Darren,

      I’ve italicized the word employee for you in the intro to help clarify.

      “If your employer has you in a 401(k) plan, you can also open up a Self-Employed 401(k), but it wouldn’t make sense to do it because the total employee contribution is limited to $18,000 across all your 401(k) plans.”

      I’m not sure where I said you cannot contribute to both an Self-Employed 401(k) and an individual 401k(k). Can you point it out so I can clarify? Also, what is an employer 401(k)?

  23. Is the SEP IRA the same as the Self Employed Solo 401k? I am still confused, so will just ask a question here. I work full time and so does my spouse. We both make the maximum contributions to our 401K’s. I started in LLC last month under a single person LLC filed under our personal taxes. I will preface this by I have not met with our CPA yet to determine what I can do as far as retirement with the side hustle.

    Can I start a SEP IRA? I thought the maximum contribution is $5,500 for the IRA? Maybe I am messing everything up. lol

    The plan is to meet with our accountant after she does our taxes this year and figure out what I can do with the income from the new business (side hustle). The projected income from this side hustle is $12,000 to $24,000 this year, with a huge upside potential depending on how much I want to do with it over the next few years. Thanks Sam! I love reading your blog….it is inspirational and motivating!

    1. Kristy – They are different plans. Please see this chart from Fidelity that explains the differences. You can start a SEP IRA for your side hustle.

      I am glad you are meeting with your accountant! Your questions are probably pretty typical from a lot of people. Which means, there is A LOT of upside towards pre-tax retirement savings contributions!

  24. Is 53000 limit per employee or total limit?
    Scenario I am thinking of is having s-corp with self & spouse both as employees.

  25. Hi Sam. I’m a fairly new reader, but I’m very inspired by your philosophy. I have been maxing out my 401k contributions for the past few years and I also defer 10% of my gross income into a pension plan set up by my employer. I have a question: lately I have been tempted to reduce my 401k contributions in order to be more liquid…I’m looking at potentially purchasing another home and I keep wondering if I should save that extra cash for incidentals. My gut is telling me to keep on putting it in the 401k to avoid getting taxed on it. However, 401k plan is doing terrible and the balance is falling every time I check it. Do you have any thoughts or advice? Thanks!

  26. If participate in my employers 401k program can I also open a SIMPLE IRA for my side business to contribute more than the 401k limit? Or is my only option for this the SEP-IRA?

  27. I finally opened a SEP IRA last year to start contributing my profits from my website. I had no idea I was allowed to contribute as an employer to the account, plus make IRA contributions, plus make TSP contributions. My understanding is you can only contribute 20% of your business income if you are self employed as an employer up to a max of $53k a year. So you would need to be making income of $265k a year to max out the SEP IRA, correct?

    1. Spencer. I bolded the target in my post. Give the entire post a good re-read, especially the example portion and you will find your answers!

      “Doing some simple math, you need to make an operating income of at least $175,000 after the 1/2 Self-Employed tax deduction to be able to contribute $35,000 in profit sharing + $18,000 employee contribution to equal the maximum $53,000 a year. Easier said than done. But an operating profit figure to shoot for all the same. “

      1. Spenser, how does contribution to a work 401k from an employer effect the amount of conteibutions from self employeed income. For example, if you contribute 18,500 to an employer based 401k plan and then earn $135,000 from 1099 income (side hustle) I assume you can’t make the employee contribution to the SEP-IRA but you could still contribute the employer profit sharing contribution. Moreover if you max out the SS contribution in your W-2 then you don’t need to pay the SS tax on the 1099 earnings. Am I missing something?

  28. Sam,
    What is the best way to turn rental income into SEP IRA 401k Contributions and avoid taxes on it? I wonder if I a have to form an LLC or not?

    1. One option to investigate would be to open a self-directed SEP IRA, and then to transfer the property into the IRA. Then rental income would be a return on investment and be tax sheltered. Not sure if you could do this in phases or would have to wait until you had sufficient contributions to purchase the entire property as a whole.

      I’m neither a lawyer nor an accountant, so consult a professional.

    2. My wife and I have owned a couple of rental homes for many years now.

      Rental income is generally passive income for most investors, meaning it is not earned income. Earned income is the type of income that qualifies for IRAs and 401(k)s. The exception to this would be if you or your wife could qualify as a real estate professional. This is not easy to do.

      As for placing rental houses in an IRA, I think with a little research you will find that there are few meaningful benefits to doing that. First, all the traditional tax advantages of owning a rental are lost. And second there are numerous rules related to holding real property in IRAs, including odd ball ones like you can’t work on the property yourself.

      1. Thanks for your comment David! Very helpful. I’ve often toyed with getting my realtor license on the side so I can save the 2.5%-3% commission I would have to pay. The absolute dollar amounts to a lot given the high median home prices in SF.

        This is the good thing about being a freelancer. You can do ANYTHING you want!

        1. I keep trying to talk my wife into doing the same thing! One of the reasons I’ve been unwilling to expand or contract our real property is the ridiculous and totally unnecessary costs of doing so.

          I rarely disagree with you, but I will say that I think the Seattle area beats out San Francisco as the cheapest international city based on wealth creation potential. No state income tax, a stable blue collar (Boeing anyone?) and white collar job base (MSFT, SBUX, etc.), and a very educated populace in extreme love with all things tech. Plus, unlike parts of CA, we still have drinking water. (-;

          1. Hah! I do love me some ZERO state income tax. MSFT, Boeing, SBUX, and AMAZON of course.

            I just don’t like the weather half the year. Whereas in California, there’s only about 10% of the time the weather sucks.

            I’ve been to Seattle many times. It’s great during the summer for sure.

  29. I am currently putting 8% of my income in, while my fiancee is finishing up school (and we are living on one income). Once she starts her full time job (Nursing), we will evaluate the fees for her employer 401k and determine which one we should focus on. Since we wont be able to afford to max out each of them, we will see which one is better in terms of fees (probably mine since it’s federal TSP). We will definitely contribute enough to hers to get her full employer match though.

    1. Good stuff. You will love it once she starts making her full-time income. Try to save 100% of one income and spend the other. If you can save some of the other too, fantastic.

  30. Semi-post related question: At what point do you worry about contributing too much to pre-tax plans due to RMDs? I’ve read great posts regarding this on other blogs, but wanted your thoughts (others recommend slow, yearly Roth conversions after FI to lower future RMDs, but I seem to remember you’re not a fan of that).

    1. PhysicianOnFIRE

      You can always donate your RMD to charity and pay no tax, including your own directed Donor Advised Fund. Something tells me Sam won’t need the RMD to live on. If you are in a low tax bracket, it’s not a bad idea to do Roth conversions to fill up that bracket, whether it’s the 15% or 25%.

      1. Excellent suggestions my man! Roth conversions make sense when you are in a low income tax bracket or your earnings trajectory is fading.

        A lot of people who Roth mistakenly think they will make MORE in retirement than while working. This is a delusion that the government wisely does not address in order to capture MORE tax dollars now.

        Let’s say you make $100,000 a year on average when living. At an interest rate or dividend yield of 2%, you need $5,000,000 to just MATCH your average living income. That is a 50X multiple on earnings. Good luck folks! Pass the 510 Kush.

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