High Earner Side Business

Submitted by Janis Sleeter on Wed, 2022-11-30 18:43

I have a 28 year-old client whose main job pays $170,000 plus 20% bonus. He participates in the 401k.
He has a side business earning about $22,500 where he could start a Simple IRA.
He is interested in socking away as much as possible.
On the side business, will he have to pay both employee and employer FICA & Medicare since he would max out in his main job?



Submitted by William Tuttle on Fri, 2022-12-02 17:50

  • If he maximizes the employee deferral limit at the primary employer’s 401k. He can not make any further employee deferrals. No deferrals, no 3% employee match. The only option is a measly 2% non-elective employer contribution.
  • Not to mention SIMPLE IRA contributions will interfere with a backdoor Roth.
  • His best option is a one-participant 401k. He could make employee contributions which not be that great on the amount of self-employed earned income. Maximum employer contribution would be 20% of business profit – 1/2 SE tax.

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