Solo 401(k)\'s to defer gambling income?
 

Has anyone considered a solo 401(k) to shelter their gambling income? According to this article, a solo 401(k) allows a self-employed person (with no employees) to defer taxes on $14,000 + 20-25% of the rest of their self-employment income. This would be perfect for me, because I have a day job that pays for all my expenses. My poker income will be around $15,000 this year and I've mostly invested it in the stock market. I had planned on saving my poker income for retirement even before I found out about the solo 401(k).

Here's my questions:
1) Can gamblers who file as professionals take advantage of the solo 401(k)?
2) Can a person have both a 401(k) at their day job and a solo 401(k)?
3) Is there a max-contribution limit for the two 401(k)'s combined?
4) Are there any income limits?
5) Are there any good books on solo 401(k)'s and like plans?

I'll probably pull in around $60K from my dayjob this year if that makes a difference.

Re: Solo 401(k)\'s to defer gambling income?
 

1.) Yes they can. You can also use a SEP IRA which has very similar features.

2.) Yes, there is no coordination of limts. There used to be rules that aggregated all plans to come to a limit. The IRS no longer does that.

3.) The limits are separate. So for next year if your main job has a limit of $15,000 for employee contributions you can do that. The solo 401k can allow contributions of up to $42,000.

4.) There are no income limits. I assume you are talking about income caps like you would find with the Roth IRA. Your profit sharing contribution is capped at 25% of income, and you can make a salary reduction contribution up to $15,000 next year regardless of income.

5.) I don't know of any books, but Morningstar is always a good resource. You may also want to speak with a financial advisor who handles small business plans. You will pay a fee, but this is one area where finding the right plan and structuring it correctly is probably worth the price.

As an aside I wish more gamblers would look into this. No matter how successful you are I would suspect that the great majority of players and posters will have nothing substantive to show for their poker income ten years from now. Treat this as income and prepare a bit for the future.

Re: Solo 401(k)\'s to defer gambling income?
 

Don't you have to declare (and prove) yourself to be a professional gambler in order to qualify? Or can you have a regular job and just sock your gambling winnings away in this? Also, isn't there significant tax cost to being a professional gambler in the sense that you have to pay Social Security or equivalent on your earnings?

Re: Solo 401(k)\'s to defer gambling income?
 

Thanks for the reply. Do you know of any good financial advisors or CPAs or the like in the Seattle area?