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sole proprietors who are independent contractors
Posted by Richard H. on April 8, 2022 at 12:20 pmfrom reading a few articles from people who think of themselves as financial ‘journalists’ (who are, btw, published), there is still the belief that independent contractors cannot avail themselves of a solo 401k plan aka self-employed 401k plans. They are still under the misunderstanding that a solo 401k plan is legally a Keogh Plan. Keogh Plans did, indeed, at one time, prohibit independent contractors from opening a self-employed, sole-proprietor Keogh Plan, but somewhere along the line that seems to no longer be the case. A solo 401k plan and a Keogh plan are both considered to be a Qualified Plan by the IRS. In fact, I have a solo 401k plan with Fidelity which Fidelity lists as a “self-employed 401(k)/Keogh Plan on my monthly statement…..lol. So either the tax lawyers at Fidelity are confused about this, or they’re not. I can’t tell which it is. I am a self-employed, sole proprietor independent contractor with no employees. All of my income is reported to me on 1099-NEC which I receive from my customers. I’m not losing any sleep over this, but I’m curious about why this myth (independent contractors cannot have a self-employed 401(k) Plan) persists among too many financial ‘journalists’. Anyone have any theories as to why?
Mark Nolan replied 1 year, 11 months ago 2 Members · 2 Posts -
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Top SubjectSolo 401k Contributions,Solo 401k – EligibilityTop ForumsSolo 401k Contributions, Solo 401k – Eligibility
Richard H.
April 8, 2022 at 12:20 pmTop SubjectSolo 401k Contributions,Solo 401k – Eligibilityfrom reading a few articles from people who think of themselves as financial ‘journalists’ (who are, btw, published), there is still the belief that independent contractors cannot avail themselves of a solo 401k plan aka self-employed 401k plans. They are still under the misunderstanding that a solo 401k plan is legally a Keogh Plan. Keogh Plans did, indeed, at one time, prohibit independent contractors from opening a self-employed, sole-proprietor Keogh Plan, but somewhere along the line that seems to no longer be the case. A solo 401k plan and a Keogh plan are both considered to be a Qualified Plan by the IRS. In fact, I have a solo 401k plan with Fidelity which Fidelity lists as a “self-employed 401(k)/Keogh Plan on my monthly statement…..lol. So either the tax lawyers at Fidelity are confused about this, or they’re not. I can’t tell which it is. I am a self-employed, sole proprietor independent contractor with no employees. All of my income is reported to me on 1099-NEC which I receive from my customers. I’m not losing any sleep over this, but I’m curious about why this myth (independent contractors cannot have a self-employed 401(k) Plan) persists among too many financial ‘journalists’. Anyone have any theories as to why?
Richard H. -
Mark Nolan
April 8, 2022 at 4:06 pmThe Keogh Plan was named after deceased Congressman Eugene Keogh who in the 1960s led legislation to have Congress create owner-only qualified plans.
IRS publication 560 confirms that a sole proprietorship is a business. It goes on to state that for retirement plans a sole proprietor is treated as both an employer and an employee.
In sum, a Keogh or H.R. 10 plan is the same as a solo 401k plan–they are know as qualified plans but for the self-employed with no full-time common-law W-2 employees.
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