Originating Article: https://www.thestreet.com/retirement-daily/ask-the-hammer/boost-retirement-savings-multiple-income-streams
Briefing Document: Maximizing Retirement Savings with Multiple Income Streams
Date: October 26, 2023 (Based on the "Publish date" of January 29, 2025, I am using today's date)
Source: "Boost Retirement Savings: Strategies for Multiple Income Streams" - Retirement Daily on TheStreet
Subject Matter Expert: Jeffrey Levine (Financial Expert)
Main Theme: This article focuses on strategies for individuals with multiple income streams to maximize their retirement savings by leveraging different retirement plan options available to them through "unrelated employers".
Key Concepts & Ideas:
- "Unrelated Employers" Advantage: The central concept is the distinction between income from a primary employer and income from a side business. Because these are considered "unrelated employers", an individual can potentially establish separate retirement plans for each income source. This is key because while the salary deferral limit is coordinated across all plans, the overall contribution limit is not. As the article states, "When an individual has income from separate, unrelated businesses, they can establish distinct retirement plans for each, potentially increasing their overall retirement savings."
- Retirement Plan Limits: There are two key limits to consider for retirement plans like 401(k)s:
- Salary Deferral Limit: The maximum amount an individual can contribute from their wages. This limit is combined across all plans an individual participates in.
- Overall Limit: The total amount that can be contributed to the plan, including employer contributions. This limit is NOT combined between plans from unrelated employers.
- Side Business Structures: The legal structure of the side business influences contribution options:
- Sole Proprietorship: Contributions are based on the net profit of the business, adjusted for self-employment taxes.
- S Corporation: Contributions are limited to 25% of the wages paid to the owner-employee.
- Retirement Plan Options for Side Income: The article discusses two main retirement account options for side business income:
- SEP IRAs: These are simpler to set up and maintain but may have lower contribution limits.
- Solo 401(k)s: Often allow for higher contributions and offer greater flexibility (e.g., Roth and after-tax options). The choice depends on factors such as, "The need to defer additional salary, desire for profit-sharing contributions, preference for investment choices, willingness to handle additional compliance and recordkeeping requirements."
- Choosing Between SEP IRAs and Solo 401(k)s: There is no one-size-fits-all answer. Levine emphasizes that the choice should be made "on a case-by-case basis, considering the individual's specific financial situation and goals."
- For lower side business profits, a solo 401(k) often allows for higher contributions
- As profits increase (e.g. to $500,000 or more), the contribution limits tend to equalize between SEP IRAs and solo 401(k)s.
- Gig Economy Relevance: The article acknowledges the rise of the gig economy and emphasizes the growing importance of understanding how to optimize retirement savings across multiple income streams. The article concludes that "...questions about optimizing retirement savings across multiple income sources are becoming increasingly common, highlighting the importance of staying informed about these complex financial strategies."
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