409 | 401(k), Mega Backdoor Roth, and the Premium Tax Credit

ChooseFI | Financial Independence Podcast

Jonathan Mendonsa & Brad Barrett | Choose FI Media, Inc

Careers, Investing, Business

4.8 • 5.2K Ratings

🗓️ 18 November 2022

⏱️ 72 minutes

🔗️ Recording | iTunes | RSS

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Summary

Most people worry that leaving their W-2 job means diving into a tax nightmare — but what if the opposite were true? Self-employment opens doors to retirement accounts and tax strategies that traditional employees can't access, yet fear of the unknown keeps countless would-be entrepreneurs stuck in corporate life. Sean Mullaney — tax expert and author of Solo 401k: The Solopreneur's Retirement Account — joins Brad to break down the mechanics of self-employment taxation, retirement planning, and healthcare subsidies. Both income tax and self-employment tax come into play when you work for yourself, requiring estimated quarterly payments instead of automatic W-2 withholding. The conversation then shifts to the Solo 401k, which replicates (and often exceeds) the benefits of traditional employer-sponsored plans while giving you full control over your investment choices and higher contribution limits. The episode closes with a deep look at the Premium Tax Credit for Affordable Care Act plans, explaining how self-employed individuals and early retirees can strategically reduce their modified adjusted gross income to qualify for better subsidies — a crucial consideration for anyone seeking affordable healthcare outside of employer coverage. Chapter Markers Introduction to Self-Employment and Taxation [00:00:00] Estimated Tax Payments Explained [00:08:11] Understanding the Solo 401k [00:19:51] Premium Tax Credit Overview [00:54:05] Conclusion [01:09:05] Key Insights "Taxes shouldn't deter you from pursuing self-employment." [00:03:22] "Knowledge empowers you to leave your W-2 job without fear of taxes." [00:19:34] "Self-employed? You can still save effectively for retirement." [00:23:11] "Consider Roth conversions if you're early retired and have low income." [01:01:23] "Use IRS Pub 560 to help calculate your employer contributions." [00:44:01] Related Resources IRS Publication 560 — Calculating employer contributions [00:44:01] Healthcare.gov Premium Tax Credit — Premium tax credit information [01:07:18] ▶ Listen Next: Ep. 421 — Secure Act 2.0 Deep Dive: What Changed for Retirement Savings | Essential Listening

Transcript

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0:00.0	Hello and welcome to Choose If I. Today in the show we have Sean Malini, the FI tax guy,
0:05.3	and now the author of the book, Solo 401k, the Solopreneurs Retirement Account.
0:11.0	And always excited to have Sean back on the show. We've had him on numerous numerous times.
0:15.7	He is our in-house tax expert, really. It's astonishing the wealth of information he has.
0:21.7	And I always have just a list of topics I want to talk to him about today.
0:26.2	We have kind of a multi-part episode. We're talking about self-employment and taxation.
0:32.4	We're going to of course talk about the Solo 401k. And really importantly, for just about
0:37.5	everyone listening, the premium tax credit for the Affordable Care Act plans.
0:42.8	And this is especially pertinent because we are in the middle of the open enrollment period.
0:48.0	So really timely and pertinent. And I'm just excited to chat with Sean about all of this.
0:52.5	So with that, welcome to Choose If I.
0:54.8	You're listening to Choose If I. Radio.
0:59.6	The blueprint for financial independence lives here.
1:10.4	If you're looking to unlock the secrets to financial independence and early retirement,
1:15.5	you're in the right place. Stay tuned and join a community of like-minded people who are
1:20.5	getting all things to do and taking control of their lives in the pursuit of financial independence.
1:26.5	Choose If I. Your home for financial independence online.
1:42.4	Sean, welcome back to Choose If I. It's always happy to have you here.
1:45.6	Brad, always great to be back and to chat a little tax.
1:49.4	Nice. Yeah, sounds good. And I know you always have a little disclaimer that's very,
1:54.8	very important that frankly we should talk about every episode. But I would love to give you the
1:59.6	opportunity. Yeah, Brad. So today's discussion is an educational discussion, right? Neither Brad
	...

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