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In case you are a freelancer or contract employee, there are nonetheless techniques to decrease your 2022 tax invoice — together with contributions to a retirement plan progressed by means of regulation handed in December.
Some of the provisions from Safe 2.0 incorporated a metamorphosis to solo 401(okay) plans, designed for self-employed staff (and in all probability spouses) or industry house owners with out a workers.
Like usual 401(okay) plans, there is a deduction for pretax solo 401(okay) contributions. However since solo 401(okay) account house owners could make deposits as each the worker and employer, there is a probability to avoid wasting extra.
Ahead of 2022, you had to open a solo 401(okay) by means of Dec. 31 for current-year deposits. However Safe 2.0 prolonged the time limit, permitting you to ascertain a plan after the top of the taxable 12 months and prior to your submitting due date.
“It was once an enormous recreation changer for us once we noticed that come thru,” stated Tommy Lucas, an authorized monetary planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.
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Up to now, when single-employee companies sought after to open a retirement plan after the calendar 12 months, Lucas will have opted for simplified worker pension plans, sometimes called SEP particular person retirement accounts, or SEP IRAs, an alternative choice for self-employed staff.
On the other hand, for the reason that fresh legislative exchange, his corporate “nearly at all times” choices the solo 401(okay) as a result of shoppers would possibly be able to give a contribution extra.
Solo 401(okay) contribution limits
For 2022, you’ll give a contribution the lesser of as much as $20,500, or 100% of repayment right into a solo 401(okay) as an worker. (You’ll save $6,500 extra in case you are 50 or older.) Plus, at the employer aspect, you’ll give a contribution as much as 25% of repayment, for a plan most of $61,000.
Against this, SEP IRA contributions cannot exceed 25% of the worker’s repayment or as much as $61,000 for 2022.
Up to now, you need to make employer contributions after the tax 12 months ended if the solo 401(okay) was once already open. Safe 2.0 authorized retroactive solo 401(okay) account openings in 2023 whilst nonetheless permitting employer contributions by means of the tax time limit.
By means of the 2024 tax season, you’ll be able to additionally have the ability to make 2023 worker deferrals into your solo 401(okay) after the tax 12 months ends, consistent with John Loyd, a CFP and proprietor at The Wealth Planner in Castle Price, Texas. He’s additionally an enrolled agent.
In fact, choosing the right retirement plan would possibly rely on different components, akin to long run workers or plan regulations. “However it is most commonly depending on their web source of revenue,” he stated.