I’m self-employed and have a solo 401(k) plan. In previous years I’ve always contributed enough to my solo 401(k) through employee and profit-sharing contributions to push my taxable income down to the top of the 12% tax bracket. I pay estimated taxes throughout the year based on my taxable income being just to the top of the 12% tax bracket.
I maxed out my employee contributions to my solo 401(k) for the 2023 tax year. However, I wait until tax time to determine my profit-sharing contribution to my solo 401(k) for the previous year to determine how much I need to contribute to get my taxable income down to just the top of the 12% tax bracket. However, this year I find myself in an unfortunate position, for reasons I won’t go into, where I don’t have sufficient funds to make my profit-sharing contribution to my solo 401(k) for the 2023 tax year. Not only does this mean I will now be paying 22% tax on some of my income but I will also be subject to an underpayment penalty.
A potential source of funds that I can tap to make my profit-sharing contribution to my solo 401(k) is my HSA. I have always kept receipts for medical bills that I have paid out of pocket with the intention that I can use those receipts to withdraw from the HSA at a later time, preferably in retirement. I have more than sufficient funds, and receipts to support the withdrawal, in the HSA to make my full profit-sharing contribution to my solo 401(k). I could tap sufficient funds from my HSA to avoid an underpayment penalty on my taxes or I could tap sufficient funds from my HSA to avoid an underpayment penalty and get my taxable income down into the 12% tax bracket.
I’m not sure this is a good idea. The money would effectively just be moved from the HSA to the 401(k) and in the process reduce my taxable income and negate an underpayment penalty.
Is this a bad idea?
I maxed out my employee contributions to my solo 401(k) for the 2023 tax year. However, I wait until tax time to determine my profit-sharing contribution to my solo 401(k) for the previous year to determine how much I need to contribute to get my taxable income down to just the top of the 12% tax bracket. However, this year I find myself in an unfortunate position, for reasons I won’t go into, where I don’t have sufficient funds to make my profit-sharing contribution to my solo 401(k) for the 2023 tax year. Not only does this mean I will now be paying 22% tax on some of my income but I will also be subject to an underpayment penalty.
A potential source of funds that I can tap to make my profit-sharing contribution to my solo 401(k) is my HSA. I have always kept receipts for medical bills that I have paid out of pocket with the intention that I can use those receipts to withdraw from the HSA at a later time, preferably in retirement. I have more than sufficient funds, and receipts to support the withdrawal, in the HSA to make my full profit-sharing contribution to my solo 401(k). I could tap sufficient funds from my HSA to avoid an underpayment penalty on my taxes or I could tap sufficient funds from my HSA to avoid an underpayment penalty and get my taxable income down into the 12% tax bracket.
I’m not sure this is a good idea. The money would effectively just be moved from the HSA to the 401(k) and in the process reduce my taxable income and negate an underpayment penalty.
Is this a bad idea?
Statistics: Posted by MsPickles — Wed Feb 07, 2024 10:51 pm — Replies 0 — Views 74