As I was reminded repeatedly by TurboTax’s 2023 ad campaign called “Don’t Do Your Taxes,” most people would rather scale an icy mountain than file their taxes.

While I absolutely used to feel that way, too, I’ve come to love tax season as a time for reflecting on my financial progress, collecting forms like rare Pokémon, and poking around my tax software of choice, TaxAct (not a sponsor, but you should be!), for deductions I didn’t realize I qualified for. (The part where the software tells me I owe tens of thousands of dollars is my least favorite part, but it’s decidedly fun up until that point!)

So, we’re discussing three ways to lower your tax bill that I’ll highlight below, but I also wanted to cover a few bizarre forms you may encounter when you begin dabbling in the world of deductible contributions to qualified retirement plans. (This won’t be exhaustive, but they’re items Henah or I have personally come across after implementing our own strategies.) It can be scary the first time you hit a speed bump in the tax software that’s like, “Yo, you may have screwed this up!” 

Now, depending on how you earn and your access to retirement accounts and certain healthcare plans, it’s possible that all three of the options we cover today will be viable for you, but they all have one thing in common: 

They’re all legal ways to hold on to more of your income, instead of forking it over.

Crucially, these vehicles allow contributions made this year—in 2025—to be characterized as though they were made last year, in 2024. And at the risk of stating the painfully obvious: To take advantage of this, you have to have the cash available to invest. 

Which tax year should you select when making contributions in 2025 for 2024?

When you’re contributing to these investment accounts, they’re going to ask you which contribution year you’re electing. If you’re trying to ease your 2024 tax burden, be sure to select 2024! If you choose 2025, it’ll apply the contribution to next year’s tax bill.

The Traditional IRA and a few related fun formz

If you (and your spouse, if you have one) are not covered by employer-sponsored retirement plans at work (read: a 401(k) or 403(b), most likely), you can each contribute up to $7,000 to your own Traditional IRAs for the 2024 tax season. 

That’s up to $14,000 you can wipe right off the top of your taxable income, if both partners contribute the full amount to their respective IRAs.

A minor point of clarification for couples with combined finances: These are intended to be individual retirement accounts, so there’s no such thing as a “joint” IRA.

How do I calculate the tax savings I’ll score from contributing to the Traditional IRA?

For example, if you and your spouse are in the 24% marginal tax bracket after other deductions and you both contribute the maximum allowed, that’s a joint tax savings of approximately $3,360 (a calculation we arrive at by multiplying our contribution, $14,000, by our marginal tax rate, 24%). 

This means if you owed the IRS, say, $1,500, this one move would wipe out that tax liability, and probably generate a refund, too.

But here’s how your income may thwart your plan to deduct your contributions

Straight from the mouths of our boiz of the IRC, here are a few income limits and phaseout scenarios to be aware of for the 2024 tax season:

If you ARE covered by a workplace retirement plan…

• A single taxpayer (or head of household) begins to phase out of being able to take a deduction for their contribution when their MAGI (Modified Adjusted Gross Income) exceeds $77,000, and is totally ineligible for a deduction once they earn more than $87,000

• A married couple filing jointly begins to phase out of being able to deduct their contribution when their MAGI (We Three Kings, baby!) exceeds $123,000, and is totally ineligible for that sweet, sweet deduction once they earn more than $143,000 

If you are NOT covered by a workplace retirement plan, but your spouse is…

• A married couple filing jointly, where you are not covered by a workplace plan (but your spouse is!) begins to phase out at a MAGI of $230,000 and is totally ineligible once MAGI exceeds $240,000

And if you’re married filing separately, good luck—you can’t earn more than $10,000. (I know, I don’t get it, either.)

When this won’t work

To put a finer point on this one, this can only be leveraged to the hilt if you both aren’t covered by retirement plans at work. 

Also note that you’re only allowed to contribute a maximum of $7,000 across your Traditional and Roth IRAs, so this won’t work if you’ve already contributed the maximum for 2024 (even if you were contributing to a Roth IRA, not a Traditional—but if you contributed, say, $3,000 to a Roth IRA, you’d have $4,000 left that’s fair game to contribute to either). 

Fortunately, if you are covered by a plan at work and not eligible to consider a deductible Traditional IRA contribution, you can still contribute up to $7,000 to a Roth IRA (with some income limitations; here’s a video about how to get around those), though that won’t lower your taxes this year. 

You can open a Traditional or Roth IRA at pretty much all major brokerage firms; I prefer roboadvisors for ease of use (think Betterment, M1 Finance, etc.), but if you choose to take the DIY route, remember to invest the cash you contribute. I know way too many smart people who opened an IRA, funded it, and never invested the cash, so it just sat there…for years…uninvested. We have an episode about indices to consider when you’re building a diversified portfolio.

If you make excess deductible contributions, you’ll get prompted with a message (in TaxAct, at least!) that looks like this.

This screen grab is from the 2022 tax season.

Notice how TaxAct tells you what your maximum allowable deductible contribution is—in this case, the couple’s income, $213,789, was above the upper limit for a couple where both spouses are covered by plans at work in 2022. 

Form 8606 (I promise it’s not too scary)

All you need to do is file Form 8606, declaring that—oopsie daisy—you were totally just kidding, Uncle Sam, and your contributions were actually non-deductible all along! 

That looks like this: 

In this example, one individual in the couple accidentally contributed $2,400 to a Traditional IRA without realizing they couldn’t deduct the contributions. By classifying the entire amount as nondeductible, they’ve dodged the penalty bullet.

A quick jargon interlude: “Deduct” or “deductible” effectively translates to “wipe the amount off your taxable income as though it never happened.” Deductible contributions to pre-tax accounts are what allow us to save income tax in the present year. In this case, the couple became ineligible during the course of the year to deduct their Traditional IRA contributions, so the contributions become “non-deductible.” I.e., they’re no longer allowed to take the tax deduction.

So while you can easily fix excess deductible contributions by classifying them as “non-deductible,” you still won’t be able to deduct them (but they’re still tax-sheltered investments for the future, so all is not lost!).

And while we’re on the topic of Traditional IRAs, let’s talk about the 1099-R…

If you rolled over a 401(k) into an IRA in 2024, you received a form called the 1099-R. It’s a form your investment firm sends you whenever you take a distribution from a retirement account (yes, even a legal, unpenalized, run-of-the-mill rollover distribution!).

When I first received one a few years ago, I was convinced I was on a Pentagon watch list and had royally f***ed something up, but not to fear—this is a relatively straightforward declaration as well. 

For example, in the TaxAct software, in the “Income” section, you’ll see an option for “Taxable IRA Distributions.” When you click on it, you’ll have the option to add a 1099-R. If you fill out the form exactly, it should include a few things:

• The amount you rolled over

• The “code” for the rollover 

• The taxable amount (if it was just a direct rollover that didn’t change tax status, it should say $0.00)

…and that’s about it. Regardless of your rollover amounts, filing your 1099-Rs shouldn’t impact your tax bill, but you’ll still want to make sure you report ’em. The IRS is ~super serious~ about transparency, you know?

Next up: The SEP IRA

If you have any self-employment income (read: 1099 income), this last-minute Hail Mary might be a godsend. Side hustle girlies, #rejoice.

A few things to note:

• If you have a business with full-time employees, the rules are a little different; you have to contribute to their SEP IRAs, too, so if that’s your situation, you probably have a business CPA who can guide this choice—but if you’re just a solopreneur or side hustler, this is probably a fairly uncomplicated option for you. 

• You can contribute to a SEP IRA even if you’re also covered by, say, a 401(k) at a W-2 employer, since they’re accounts funded by two different sources of income.

The TL;DR on the SEP IRA for solopreneurs is that you can contribute up to 20% of your net business income, up to a whopping $69,000 for 2024. 

If you want to calculate a super precise contribution for the biggest deduction possible, you can always pay a CPA to do it for you—but a tax pro I befriended (yep, I love me some tax nerds) taught me a cool trick to make this a little easier. 

Since you deduct your self-employment taxes of 15.3% in order to get your “true” net business income on which the contribution is based, you can simply multiply your “self-employment income after write-offs” by 20%, rather than 25% (which is what you’ll see elsewhere online as the upper limit). This will give you a rough estimate of how much you can contribute to your SEP IRA.

So if your business earned $15,000 and you’re writing off $3,000 for expenses, leaving you with $12,000 of net business income before other deductions, you’d multiply $12,000 by 20%: You can contribute around $2,400 to your SEP IRA. 

For those with a lot of side hustle or self-employment income, this deduction can be quite significant.

When this won’t work

This won’t work if (a) none of your income came from self-employment or side hustle-type sources or (b) you’ve already contributed the maximum to a Solo/Individual 401(k). For the uninitiated, a Solo 401(k) is just a 401(k) you can open for yourself and use as a self-employed person. 

SEP IRA vs. Solo 401(k)

For example, if I had a Solo 401(k) in 2024 and I already contributed 20% of my net business income to it as “employer contributions,” I can’t then double-dip and contribute 20% more to a SEP IRA, too. 

If you had a Solo 401(k) but didn’t fund it, you could finish funding the Solo 401(k) (with “employer” contributions) in 2024 for the 2024 tax year. That’s totally fair game, too—no SEP IRA required.

The reason the SEP IRA is a more viable option for retroactive tax minimization? You can’t open a Solo 401(k) in 2025 and fund it for 2024. The Solo 401(k) has to be opened by Dec. 31, 2024 to be eligible for 2024 contributions. That’s why the SEP IRA is such a baller tool—you could have started a business in 2024, made absolutely no moves to invest in pre-tax self-employment vehicles, and decide on April 13, 2025 that you want to open and fund one for 2024.

You can generally open SEP IRAs at all major brokerage firms without much fuss; roboadvisors typically offer them as well.

Beware of a SEP IRA if you do the Backdoor Roth IRA (and one way around it)

One watchout: If you’re currently someone who dabbles in the Backdoor Roth IRA strategy because you’re over the Roth IRA income limit, you’ll want to weigh your priorities before opening a SEP IRA, as a SEP IRA “counts” as a Traditional, pre-tax IRA and will make executing a Backdoor Roth IRA more complicated. 

Sometimes, people opt for Solo 401(k)s instead for this reason. But if you’re down for a complicated workaround, you can open both a SEP IRA and a Solo 401(k) in 2025, fund the SEP IRA for 2024, and then—after you’ve filed and tax season is over—roll that shit over into your Solo 401(k) such that you have $0 balance in the SEP IRA again. Problem solved. Backdoor Roth IRA commence! Just note your business needs to be incorporated with an EIN number to open a Solo 401(k).

How to ~declare~ these glorious deductible contributions

Under “Deductions,” you’ll see a line item for “Self-employed SEP, SIMPLE, qualified plans.” That’s where you’ll tell the software how much you contributed, and “ooh” and “aah” as your tax bill lowers accordingly. As you can see, in 2021, my SEP IRA/Solo 401(k) contributions saved me an absolute boatload (yacht-load? We are talking about a billionaire’s game, after all).

And finally, the HSA—the consolation prize for our late capitalist healthcare hellscape!

If you have a high-deductible health plan (as defined by the IRS), you may be eligible for an HSA plan. The contributions and growth will be tax-free forever if you use the money for qualified medical expenses, so it’s a great place to rack up hella capital gains.

For 2024, the minimum annual deductible to be considered a high-deductible plan for self-coverage only is $1,600, and for family coverage is $3,200. The contribution limits vary on HSA plans for the 2024 tax year: If your health insurance plan just covers you, the limit is $4,150, and if your plan covers your family, it’s $8,350 for 2024.

You may already have an HSA set up through your work, or you may need to open one yourself, but once you surpass a certain amount of cash in the account (typically somewhere in the $1,000 to $2,000 range, but it varies by plan), you’re usually able to invest the funds—something you’ll do within your HSA account portal. 

You’ll have to go to your HSA provider and make a direct contribution (as opposed to a payroll contribution) to contribute one big, fat lump sum, which is technically suboptimal because direct contributions aren’t exempt from FICA tax the same way payroll contributions are. The good news is, an HSA contribution made in 2025 can be retroactively tax-deductible for 2024.

Moving forward, consider making your 2025 contributions through payroll deductions, because then your contributions won’t be subjected to FICA tax, either! Woohoo! Another 7.65% saved.

Any after-market HSA contributions (read: not payroll deductions, but new manual contributions) you make in 2025 for 2024 will be captured in the “Deductions” section:

When this won’t work

If you’ve already contributed the maximum to your HSA in 2024, unfortunately, this retroactive move isn’t an option (those contributions will be noted on the W-2 that your employer sends you). This also won’t work if you have a low-deductible plan.

The HSA is one of the best tax vehicles out there, because it’s effectively a second Traditional IRA that’ll never be subjected to required minimum distributions. 

If you hang onto your HSA until you’re 65, it’ll basically “convert” to follow the same rules as a Traditional IRA, and you’ll be able to make withdrawals for whatever you want (not just health expenses) without paying a penalty. You’ll pay taxes on your withdrawals like you would with a Traditional IRA if you don’t spend them on health-related expenses, but that’s about it. 

Someone who’s not covered by a retirement plan at work, has side hustle income, and has a high-deductible health plan could theoretically use all three methods.

Talk about a triple tax whammy! (I hate myself.)

It’s worth restating: I’m not a licensed tax professional. Please consult your CPA and do your own research before making big money moves. Hopefully this serves as a starting point for your pre-tax investing game this tax season if you haven’t made any decisions yet!

Burnout (and subsequent guilt about the burnout)

After only a year, I began to feel symptoms of (what I learned later was) burnout. According to WebMD, burnout is the condition in which, after extended periods of feeling “swamped,” you’re unable to escape feelings of general overwhelm. 

I didn’t understand why I felt this way. I found myself struggling to stay focused, needing frequent breaks, feeling tired all the time, and having emotional flare-ups over work stuff. 

It sounds whiney, I know—working a “fake email job” in a climate-controlled office would hardly register as “work” to my meatpacking ancestors who probably stood knee-deep in questionable fluids for 12 hours each day, but something felt inescapably meaningless about the barrages of email threads, Powerpoint decks, and back-to-back 30-minute “touch bases.” 

On one of my first work trips, an older colleague told me, “You have to remember that perception is reality. Even if you’re doing a great job, if someone sees you at your desk scrolling on your phone, leaving early, or coming in late, they’re going to think you’re not working hard. People talk.” 

You’d think working from home for three years would’ve helped to alleviate this (and in some ways, it did!), but the Wall Street Journal pointed out that the reason we were all working from home (and how) meant these feelings intensified. 

The expectations at work didn’t slow or cease because we were taking calls from our living rooms. The pressure to prove we were still working hard in the face of furloughs escalated, and new “productivity” software emerged to fill the gap: Microsoft Teams, the proliferation of Slack and Zoom, and other chat apps that meant you were now accessible at all hours of the day and night. Ironically, this somehow replaced actual productivity with a sort of endless toiling; LARPing your job as opposed to actually doing it.

It became clear to me early in my career that it wasn’t enough to just work hard—I had to look like I was working hard. Work meant two things: Actually performing, and performatively performing. The latter was more exhausting than the former.

The crazy part? 

All things considered, I had a great job. I had (what I thought was) my dream job, so I couldn’t pinpoint the source of my existential dread.

I vastly underestimated how mentally draining—yet somehow bizarrely un-stimulating—it would be to work 9–5 in a big corporate setting. 

And nothing makes burnout worse than feeling guilty about feeling burnt out. My guilt (“I should just be grateful I have a job at all!”) intensified as more time passed.

I had been so excited to begin my career that I couldn’t understand why (only a few years in!) I was already feeling disillusioned. I was a sitting duck for financial independence propaganda.

None of this would’ve mattered if my livelihood hadn’t literally depended on it

In retrospect, it’s clear the exhaustion was a byproduct of my personal safety and security being wholly tied up in not just the job, but also in others’ perceptions of me.

The constant maintenance of perception (or occasional bouts of apathy) wouldn’t matter so much if our livelihoods didn’t feel like they depended on those perceptions. 

You could make the case that none of this stuff would’ve actually been materially detrimental to my career or impacted whether or not I received a paycheck—but tell that to a neurotic 22-year-old with no money who doesn’t know any better and just signed her first 12-month lease. 

It’s no wonder the financial independence movement became so attractive to me, because it promised both freedom and reprieve from all of this posturing. 

There’s just one rather obvious problem: It can take a really long time to achieve. So long, in fact, that many young people throw in the towel before they begin—ironically enough, the polar opposite approach to “gunning for financial freedom” is “conceding in the first inning that you’ll never reach it and just spending everything you make while the going’s good.”

As writer Kayti Christian points out, it’s pretty challenging to get off the hamster wheel when the hamster wheel pays your bills, but the fundamental mistake is allowing those bills to swell larger and larger, rendering the hamster wheel that much more necessary. 

Most of us do not freely choose to engage in behaviors that lead to burnout, we engage precisely because we feel we have no other choice. 

It feels as though we can’t turn our back on the late-night email or the unread message, because what if that person gets angry and then what if someone else finds out you’re not responsive and then what if next quarter you don’t get promoted and then what if you can’t afford your mortgage and what if, what if, what if—

Our security is so intrinsically tied to our jobs that disengaging when feeling burnt out doesn’t seem like a safe or responsible option. If we lose our jobs, we don’t just lose our income: We lose our healthcare. We lose our retirement plan (or rather, the ability to contribute to one). We lose our identity, in some cases. 

Sometimes, it’s hard to deny that true safety and security in the US often looks a whole hell of a lot like just having a bunch of money.

When we talk about this in the context of financial independence, we usually mean the ability to do something extreme—like quit a job. But my perspective on true independence has evolved: It’s not about disengaging completely, forever. True independence is more impactful than that. It enables you to move about your work and life in a way that isn’t rooted in fear of it all crashing down. 

We move through life differently when we’ve self-insured our own safety and security. 

“I don’t need this” is a life-changing perspective with which to approach your career. It allows you the ability to change paths at any time—and money grants you access to that gated area of invincibility behind the velvet rope more directly than just about anything else. 

This is the moat that money can build around you. It’s permission to separate your work—your livelihood—from your most fundamental needs, and behave accordingly. Saying what you actually think, taking time off when you actually need it, and doing what you actually want to do. 

This is why I pursue financial independence. Not because I think next week (or even next year) my moat will be wide enough, but because it never will be if I don’t keep digging. 

Money is power—and it’s the kind of power you can seize for yourself with enough saving and investing. Nobody in upper management has to give it to you. 

Today, we’re going to break down the two most optimal account mixes for people who have both W-2 income and self-employment income from a side hustle (commonly referred to as 1099 income here forward, because I’m fancy like that, and so are you). One additional heads-up: This post will not address HSAs for simplicity’s sake, but I like those, too.

Got it? 

W-2 = wages from beneficent Corporate Overlord from which taxes are already deducted

1099 = income from side gigs from which taxes are not already deducted

Having both types of income opens you to myriad possibilities with respect to fancy tax footwork—so let’s dig into the best two combinations.

Combination #1: Employer-sponsored 401(k) or equivalent account + Solo 401(k) + Roth IRA/Backdoor Roth IRA

This is technically the most optimal from a tax standpoint, but a little more complicated, and potentially unnecessary. 

At first, this path seemed like the only universally viable one. Here’s why: 

• The 401(k) is flexible AF. It gives you the ability to make Traditional or Roth contributions, regardless of how much money you make (the IRA, on the other hand, has income limits associated). I’m personally a proponent of leveraging a Traditional 401(k) to cash in on those juicy tax deferrals.

• The Solo 401(k) is basically a duplicate of the W-2 401(k). Same flexibility applies here. You can contribute up to 20% of your net business income to your Solo 401(k) even if you’re already contributing the maximum to your employer 401(k) and the same “no rules!” free-for-all applies with respect to income limits. I.e., there aren’t any. One thing to note: If you’re contributing the maximum to your W-2 401(k), make sure your contributions to your Solo 401(k) are characterized as “employer” contributions (you’re your own boss, Queen!).  

• The Roth IRA or Backdoor Roth IRA add tax diversification. If you’re under the limit of what the IRS deems “high earner,” you’re in the clear to contribute normally to a Roth IRA. If you’re above that limit ($165,000 single earner or $246,000 filing jointly in 2025), you may be able to do a Backdoor Roth IRA. I say “may” because it’s contingent upon not having any other Traditional or Rollover IRAs laying around thanks to this buzzkill tax oddity called the pro rate rule—so if you fear you’re ~too rich~ to contribute, more Backdoor Roth IRA hot takes live here.

If you’re one of the few lucky Americans with income so high that you’re able to contribute the maximum to all of these accounts, you could potentially score:

• $23,500 tax-deferred or Roth dollars in the W-2 401(k)

• $70,000 tax-deferred or Roth dollars in the Solo 401(k)

• $7,000 Roth in the Roth IRA

*infomercial voice* But wait, there’s more! 

If your employer and plan provider allow for after-tax contributions to your W-2 401(k) (what’s known as the Mega Backdoor Roth IRA), you can fill your W-2 401(k) up to $70,000, too. Keep in mind that includes your employer’s matching contributions, so the realistic mix is likely $23,500 of your contributions, $5,000-$10,000ish in employer match, and the remaining $30,000ish in “after-tax” contributions that can be converted to Roth.

The reality? If you’ve got enough money coming in that you can sock away $70,000 in two different 401(k)s, the chances that you should be opting for Roth in either of those accounts are slim—your tax rate is likely extremely high. 

Other considerations for Combination #1

Since you can opt for any mix of Traditional or Roth in both 401(k)s, especially if you can’t fill either of them all the way up, it’s likely much simpler to just get your desired amount of Roth exposure in the 401(k)s instead of jockeying around with the Backdoor Roth IRA.

If you can fill both 401(k)s and prefer to keep all of it tax-deferred, then I think the Backdoor Roth IRA makes sense—but there’s no need to overcomplicate it. (“There’s no need to overcomplicate it,” she says, in an article that’s blatantly overcomplicated.)

Fantastic. That brings me to my next point about simplicity in Combination #2.

Combination #2: Employer-sponsored 401(k) or equivalent account + SEP IRA + Roth IRA, maybe

This path might be a hair less optimized, but potentially far simpler.

• The 401(k) is still the bedrock here. As a refresher, it gives you the ability to make Traditional or Roth contributions, regardless of how much money you make.

• The SEP IRA works a little differently than the Solo 401(k). The major selling point? It’s way easier to open. You don’t need an EIN number (i.e., an incorporated business) and there’s less paperwork. Most robo-advisors offer SEP IRAs, while only major incumbent brokerage firms offer Solo 401(k)s. There’s no such thing as a Roth SEP IRA, so you only have the ability to make pre-tax contributions. If you’re rolling in the dough, though, that shouldn’t be an issue; most high earners wouldn’t be opting for Roth over Traditional anyway, in my opinion. Here’s more about the differences and how to open both types of accounts, if you’re torn. (Technically speaking, you contribute post-tax money to a SEP IRA that you then claim as a tax deduction in April when you’re gettin’ freaky with TaxAct and a bottle of red.)

• The Roth IRA, but probably not. Remember our rules about the Roth IRA? Can’t contribute if your taxable income exceeds $165,000 single or $246,000 filing jointly? Well, that might make the Roth IRA obsolete for someone in this position, as someone who can afford to invest $50,000+/year is likely already above the income limit. “What about the Backdoor Roth IRA?” you say? If you’ve got a SEP IRA, that makes the Backdoor Roth IRA a tax quagmire. TL;DR: The likely outcome for Combination #2 is that you’ll only have your W-2 401(k) and a SEP IRA unless you’re under the Roth IRA income limit that allows you to go through the “front” door.

The same logic applies here: If you have enough money to contribute to multiple accounts but not enough to fill them all up, it’s likely simplest to get your Roth exposure in your 401(k) and not even mess with the Backdoor Roth IRA (assuming you’re over the income limit). 

Other considerations if you’re hard up for that Backdoor Roth IRA

Frustrated because you have a SEP IRA or Rollover IRA sitting around, but in your heart of hearts all you want to do is perform a Backdoor Roth IRA? (Once again, sexual innuendos abound.)

Good news! We may have a valid workaround for you.

You know how you can roll old IRAs and 401(k) into a new 401(k)? The Solo 401(k) works the same way. You can open a Solo 401(k) and roll your pre-tax IRA funds into that Solo 401(k). This means you won’t have any funds sitting around in Traditional/Rollover/SEP IRAs, and you’ll be in the clear for the pro rata rule! 

If you’re wondering whether you even need Roth, I do think some Roth funds are nice in retirement so you have diversity in tax planning (even if you’re in a high tax bracket while working). After all, the tax treatment on money contributed to a Roth IRA or money contributed to a taxable brokerage account is no different: You’re paying taxes upfront. The only difference? Dividend income in that taxable brokerage account is taxed every year moving forward and your capital gains are taxed when you sell, whereas the money in your Roth IRA is never taxed again.

One more thing…

If you’re reading an article about how to invest optimally when you have two sources of income and made it to this line, you’ve already won. Keep going.

Once you file your return, you’ll probably receive something called Form 1040 that outlines everything you reported (with other forms attached, depending on your situation). I like to save that as well, as sometimes they’ll ask you to report your “2024 AGI from line 11 on Form 1040” (as a wildly specific example) when filing in the future. 

Examples of What My Manual Tracking Has Looked Like Over the Years

Business revenue

I categorized my business income into different sections and then tracked how much revenue each sponsor, affiliate, or product generates (I redacted names for #confidentiality purposes in this screenshot).

I’ll usually tally up the entire year of payments from that source in the “1099 EXPECTED TOTALS” column and then cross them off as I receive the forms in the mail.

Solo 401(k), SEP IRA, or other self-managed tax-advantaged accounts

Same with my Solo 401(k), noted above—as you can see, I contributed $70,813.30 to tax-advantaged accounts in 2021, and roughly $46,000 of it came from the “Solo 401(k)” row, so I knew exactly what to claim as a contribution so it would match whatever Vanguard sends to my IRS Daddy. (I think I miscalculated my contributions because I wasn’t taking my various business deductions into account, so I may need to go back and remove some…we’ll see.)

Taxable brokerage accounts that generate 1099-DIVs

And since we filing jointly, here’s an example from years’ past of our breakdown of taxable investing accounts. I knew I needed to submit 3 1099-DIVs for me and 3 1099-DIVs for Thomas (our joint account was opened in 2022 so nothing to report, and oddly, Thomas’s cryptocurrency had $0.00s across the board for what we needed to report, so…prayers up to the audit gods that nothing is amiss there). I hid the brokerage account names for confidentiality purposes, but knowing where each account is located helps with the demented IRS scavenger hunt of finding all the correct forms.

The Wealth Planner separates “Tax-Advantaged” investing from “Taxable” investing, so you should be able to quickly see (if you fill it out) which accounts you’ll need to grab 1099-DIVs for.

Business expenses

And finally, here’s the breakdown from 2022 of business expenses. The rest of this stuff has been charged throughout the year, so I have receipts to back up my expenses: $3,346.02. I ended up being able to deduct about $3,500 of our rent paid this year as well, thanks to the calculation that the TaxAct software did for me (I had to enter total rent paid and the percentage of the home that I use exclusively for business purposes; it was pretty easy).

How our Return Ended Up Shaking Out

TaxAct provides this nifty little summary at the end (it took me a few months to aggregate everything and another day or two to double-check all the forms; it was certainly not an easy task this year).

We reported $390,422 in 2021 income (so close to $400,000—so close) and “adjusted” down $57,864; this was in the form of deductions like Solo 401(k) contributions and other deductions (moving expenses for an Armed Forces relocation, for example). Your contributions to your employer-sponsored retirement account(s) are already removed from that top line number, so I suppose if you factor those in (about $25,000 between us), we were over $400,000—just another feather in the cap of pre-tax investing, no?

That gets us down to $332,558, from which we were able to deduct the standard deduction ($25,100 that year; 90% of Americans take the standard deduction, and it’s likely you do, too) and the QBI deduction for my business ($29,433) to create our taxable income of $278,025—more than $100,000 less than what we actually earned. 

Again, may I shout it from the rooftops? This is almost entirely due to the power of pre-tax investing. 

Now for the not-fun part:

Since we only paid $22,745 in taxes throughout the year, we owe—womp womp—$36,640 this year. Still, we’d owe a whole lot more had we not contributed to our pre-tax accounts:

• $5,580 to Thomas’s military retirement TSP

• $19,500 to my 401(k)

• $46,000 to my Solo 401(k)

• $2,700 to my HSA

…$73,780. Had we just claimed all of that as income and not contributed it to pre-tax accounts, we would’ve owed closer to $62,000 this year, not $36,000. Yikes.

Conclusions

All in all, I’m grateful that we owe money because it’s a sign of a great year. It’s a little painful to fork it all over at once, but that’s another key thing: Had I been filing quarterly taxes and setting aside 25%-30% of my business income as I went, I could’ve avoided this all-at-once tax bomb.

And if I do get audited, well…#content.

I’ve never really thought much about my HSA. FI experts always talked about it like it was this secret, secondary IRA, and to an extent I understood why, but I didn’t feel convinced enough to prioritize it as part of my ongoing financial plan. Here’s why:

Your HSA is designed for medical expenses. If you’re going to use the money for a qualified medical expense, you can put the money in tax-free, invest it and grow it tax-free, and withdraw it tax-free (yep, no taxes start to finish) – and that’s pretty sweet. But I wasn’t sure if I wanted to lock up $4,300 per year (the contribution limit for singles in 2025) for medical expenses since I had such a stellar FI plan that relied on things like the 401(k), the Roth IRA, and my taxable investing accounts.

(It’s worth noting that after age 65, the HSA essentially morphs into a Traditional IRA. You can take money out similarly to the way you’d withdraw it from a Traditional IRA in retirement and use it for anything you want, not just health expenses, but you may pay taxes on it depending on how you go about using it.)

Although the HSA “becomes” an IRA in traditional retirement (or rather, functions like one), I didn’t have a sketchy, backdoor blueprint for using the money tax-free like I do with Traditional IRAs (the Roth conversion process). For that reason, I always prioritized my taxable investing above the HSA – but today, things changed.

Whether my initial approach to HSAs was right or wrong, when it came time to file my taxes, I was reminded (in a 6 a.m. text exchange with my dad) that I could fund my HSA (that I had barely used) with post-tax money in order to claim it as a deduction in my tax return.

Why was I so excited to defer some income, you ask?

Because I found out that I owed money to the IRS.

(I basically had more taxable income than I expected this year, and didn’t pay taxes on it throughout the year as it came in. Such is life.)

Desperate to lower my taxable income by paying myself first and with no other alternatives, I funded my HSA:

Because yes, you have until the filing deadline for the current tax year (in April) to contribute to your HSA for the previous year. Holla!

As soon as I contributed the money, I pivoted back to my tax return that I was halfway through and clicked into the “HSA Contributions” section: “$3,400,” I wrote, surprised that I didn’t have to upload any forms or proof – they were just taking my word for it.

Immediately, I received an alert that I had overfunded it; apparently, my employer made a $400 contribution I was unaware of, so I had $250 of “excess contributions” for which I had to select an option that hilariously said, “Kathleen will withdraw $250 from her HSA before April 15, 2021.” Okay, baby. You got it.

But when I clicked back to “Tax Home,” my taxes owed dropped by almost $900—just like that.

If you’re like, “But wait, how?!”

Welcome to tax deferral investment vehicles, my friend!

My taxable income was in the 24% tax bracket, so my contribution of $3,400 would defer (24% * $3,400) taxes: approximately $816.

Who can open an HSA?

Anyone with a high-deductible healthcare plan (also known as an HDHP), as defined by good ol’ Healthcare.gov as “a health insurance policy with a minimum deductible of $1,650 for singles and $3,300 for families.”

Whether or not an HDHP makes sense for you probably varies a lot based on your health conditions, but for young, healthy people without pre-existing health conditions that require a lot of care, the HDHP + HSA combination will probably work well. Here’s a breakdown that will illuminate that decision.

(My friend Kylie’s Uncle Phil is an orthopedic surgeon in Dallas and we were living with him when we got our first full-time jobs and were setting up our health insurance preferences. Right away, he guided us toward the HDHP option that had a low monthly cost and HSA associated.)

You can allegedly open an HSA with a lot of different brokerage firms or banks, but I was surprised to hear this because mine came directly from my employer as part of my healthcare plan.

Unfortunately, I can’t make any solid, first-hand recommendations on where to open your HSA because I’ve never had the choice, but I can tell you that I use Optum Bank – there’s a monthly $3 fee once you invest your HSA, and that pisses me off, so I suppose it’s safe to say I wouldn’t recommend them.

Investing inside your HSA so the cash doesn’t just sit there

Once you have more than (typically) $2,000 cash in your HSA, you’re able to invest the funds.

This is crucial, because if this money were just in cash, I don’t think I’d be down to hide away virtually untouchable cash just to save $900 in taxes.

But when you let me invest it in VTSAX and VFIAX as you see below, I’m up for it.

Conclusion

• You can open an HSA if you have a high-deductible healthcare plan (and you may already have one from your employer); “high-deductible” is defined by the Feds as a deductible over $1,650 for singles and $3,300 for families in 2025

• The money you contribute will go in tax-free (technically, it might go in post-tax but then give you a deduction later, as I outlined in this post), grow tax-free, and come out tax-free if used for “qualified medical expenses” (I’ve used mine for everything from Latisse prescriptions to Tums at CVS, though ideally you wouldn’t use it for anything and instead keep receipts and allow it to grow)

• When you turn 65, it functions like an IRA and you can use it without paying the penalty that you’d ordinarily pay for using it for something other than medical expenses

• The contribution limit for the 2025 tax season is $4,300 for self-only plans and $8,550 for family coverage

If you owe taxes this year, this is a great avenue and last-ditch effort to stiff the Feds.

Being self-employed has, candidly, been a meaningful goal of mine since about six months into working full-time.

On my ideal self-employed day, I rise at 7 a.m. (instead of my current 5:30 a.m. wake-up call) and pad around the kitchen in an impossibly chic matching silk pajama set. After an hour-long morning routine that consists of matcha lattes, transcendental meditation, and a leisurely stroll around the block, I finally sit down at my Pinterest desk to put in a few light hours of reading and writing before retiring to the den for my afternoon nap.

Of course, this fantasy produces a ridiculous amount of money, my hair is shinier, my teeth are whiter, and I am a happier, less stressed version of me.

For those of you who are self-employed, I’m sure you’re having a hard time reading through your twitching left eye and uncontrollable laughter. [Update from future, self-employed Katie: LOL.]

Two obvious gripes are most common among the self-employed people I talk to: Healthcare and access to retirement accounts.

While I don’t have any answers for you on the healthcare front, I actually think the self-employed have a distinct advantage when it comes to tax-advantaged retirement investing.

While the corporate robots (read: me) get hot and bothered about a dollar‑for‑dollar match and the ability to contribute up to $24,500 per year (2026) to our 401(k)s, self‑employed folks also have powerful ways to contribute to pre‑tax investment accounts. 

Am I talking about the Roth IRA?

No! Of course not. At $7,500 per year, the Roth IRA is a great (post-tax) vehicle for both W-2 employees and the self-employed (you can open one in the straightforward way so long as you’re under the income limit of $165,000 per year; if you’re not, I’ve got a frenzied guide to contributing to a backdoor Roth IRA here).

Takeaways, upfront:

I still think you should read the post because it gets into the granular tax details, but the main takeaway I had was this, all the standard “not financial advice” disclaimers notwithstanding:

• If you’re truly self-employed (no income from W-2 jobs or access to employer-sponsored plans), you could be better off with the Solo 401(k).
• If you’re self-employed AND have a “regular” full-time job with a 401(k) (in other words, a side hustler), the SEP IRA might be an option for you to look into.

Introducing: The SEP IRA and Solo 401(k)

I honestly felt like the personal finance world had been holding out on me when I found out about these magnificent accounts. Let’s focus on the SEP IRA first, because it’s (generally) easier to set up.

SEP IRAs

The maximum you can contribute to a SEP IRA is—are you ready for this? I hope you’re sitting down—$72,000 per year in 2026.

The catch is that, in order to contribute the full $72,000, it must represent no more than (what works out to roughly) 25% of your net self-employment income. In other words, in order to contribute the full $72,000, you’d have to make roughly $288,000 in net self-employment income.

For example, if you net $100,000 per year in 1099 income, the most you can contribute is around $25,000 (25%).

Still, this is a hell of a lot better than the $24,500 employee contribution limit in a typical employer-provided 401(k).

Technically, a SEP IRA has an “employer-only contribution” setup, but that’s one of the perks of working for yourself. You are both the employer and the employee. You’re contributing 25% of your net 1099 income as the “employer” to yourself as the “employee.” Weird, right?

The extra-dope thing about that $72,000 (if you’re a high-roller earning $288,000 per year and eligible to contribute the full amount under IRS rules) is that it’s generally tax-deductible, which means you won’t pay taxes on it this year. With taxable income around $288,000, you’d likely be in the 32% marginal federal tax bracket, which means a $72,000 contribution to a SEP IRA could generate approximately $23,040 in federal tax savings—that is, $23,040 in taxes you may no longer owe this year, because you’re reducing your current taxable income. and deferring taxation within your SEP IRA.

Increíble! To really drive the point home, you could take that $23,040 you’re saving and invest it in a taxable investing account to double your fun.

You’ve got until the filing deadline to make your contributions, which means (in a normal year) you’ll be contributing from April 15 to April 15 (i.e., tax season to tax season).

This means, if you’re reading this in March of 2026 and you haven’t filed your taxes yet, you can open a SEP IRA, make contributions, and deduct it before you file to save yourself some tax dollars for the 2025 #TaxSzn.

One weird tax caveat that I don’t all-the-way-understand, but mostly get it (sue me!): Technically, it’s not quite as baller as it sounds, because you’ve got to pay your self-employment taxes on your net income (profits – expenses) before you can calculate your 25% contribution. That is: It’s not 25% of your gross self-employment income (the money on those #checks), but closer to 20% of your net income less half your self-employment taxes. plays tiny violin and begrudgingly hands back some of my Stripe funds from spreadsheet sales

What if you’re a big side hustler and you’ve got a 401(k) through your employer and a side business?

First of all, I’d love for you to flip your hair as I congratulate you on being the Ultimate Millennial Hustle Culture Workhorse! We love to see it. From one ambition trauma goblin to another, I salute you (lots of weird military references in this post; I’m sorry).

And beyond all the hair-flipping, you’re in luck!

You can still open and contribute to a SEP IRA even if you’ve already got an employer-sponsored 401(k) through traditional, full-time work.

The same rules more or less apply; you’re the employer in the SEP IRA situation, so you’re making employer contributions to yourself as the employee.

You could theoretically max out your 401(k) with your regular salary at $24,500 per year, then turn to your SEP IRA and contribute 20% of your net self-employment income and defer that as well (defer = make it tax-deductible and reduce your taxable income).

But don’t take it from me—straight from the IRS in this screenshot:

How to open your SEP IRA

Well, you know what I’m going to say: Betterment offers one. They’ll walk you through the process, including providing the IRS form you need to fill out and keep for your records in order to be in the clear.

Paid client. Views may not be representative. See App Store & Google Play reviews. Investing involves risk. Performance not guaranteed. Learn more.

A little fuzzy on how much, exactly, you can contribute? The IRS provides this “calculator” (you can probably guess why I’m using quotation marks if you’ve ever done your taxes before) that’ll help you figure it out down to the penny.

I’ll be honest: I tried to follow their instructions, and I found it pretty confusing. I’m a big fan of the 80/20 rule; that is, 20% of your effort drives 80% of the results. Put another way: Get the most juice for the least squeeze.

Rather than trying to figure out the exact amount I could contribute, I’d probably play it safe and contribute around 20% of my net pay and call it a day. (If you aren’t as comfortable with estimates like I am, please, for the love of God, hire an accountant—something I finally did in 2026 after, you guessed it, becoming self-employed.)

Legally, you don’t need an EIN to open a SEP IRA, but I’ve read that most brokerage firms require it (more on EINs below, because they are required for Solo 401(k)s).

An important note on SEP IRAs and Backdoor Roth IRAs

If you currently perform a Backdoor Roth IRA (if you don’t know what this is, don’t worry; that means this watch-out probably doesn’t apply to you), you’ll want to think carefully about opening and funding a SEP IRA. A SEP IRA is, in the eyes of the IRS, a Traditional IRA—which means pre-tax funds sitting inside your SEP IRA may result in part of your Roth conversion being taxable (the “pro rata” rule).

For that reason, if you’re committed to the Backdoor Roth IRA, it could be safer to go with the Solo 401(k). 

So where does the Solo 401(k) come in?

Solo 401(k)s work a little bit differently, and are definitely better for truly self-employed people than “traditionally” employed people with side hustles.

With a Solo 401(k), you make contributions as an employee and an employer (vs. just as the employer, as in the SEP IRA) for a total contribution of $72,000 (just like the SEP IRA) for 2026.

You can contribute (please read this in a robot voice) up to $24,500 as the employee, and then an additional employer contribution of up to 25% of your net income, less half the self-employment taxes and your $24,500 contribution (that’s right—you have to subtract the $24,500 from your net income in addition to the taxes; they really get you both ways).

Careful if you’re already contributing the maximum to your 401(k) plan at work

The hairy thing for side hustlers with the Solo 401(k) is that 401(k) contribution limits are determined per person, not per plan—which means if you’re already contributing $24,500 to your employer 401(k), you can’t also contribute $24,500 to your Solo 401(k) as an employee (this is known as the “elective deferral”).

They make more sense for self-employed with only self-employment income, since your $24,500 contribution is irrespective of your total net income less all the tax mumbo jumbo (in other words, it doesn’t matter how much you make; as long as you make more than $24,500, you can contribute $24,500). Compare that to the SEP IRA, where in order to contribute $24,500, you’d have to make more than around $98,000 in net business income.

So your employee contributions can go up to $24,500, but your “employer” contributions can still equal that 25% chunk of what’s left—which means if you can manage to contribute more than $24,500 of your income, you can (and should) up to 20% of the “net income minus half self-employment taxes minus $24,500 contribution.”

Let’s do an example, because I can feel your eyes rolling into the back of your head

The Solo 401(k) can make more sense for the truly self-employed unless said person earns more than around $288,000 in net self-employment income per year. Here’s why:

• Because the SEP IRA is structured to only allow “employer” (read: you) contributions of up to 25% of your net income, in order to contribute the maximum allowable ($72,000 per year), you’d need to net 4x that (roughly, in order for 25% of your net business income to equal $72,000), remember? That’s $288,000.
• Since the Solo 401(k) allows you to contribute $24,500 as the “employee” and 25% of whatever’s left as the employer (also you!), you have the opportunity to double-dip.
  • Consider an example of someone who makes $150,000 in net business income. (All numbers here are approximate for the sake of an example; again, please go inquire with your CPA for the correct totals!)
  • 25% of $150,000 is $37,500. That’s pretty good, right? That’d be roughly their allowable contribution in a SEP IRA.
  • But what if they chose a Solo 401(k)? Then, they can contribute their initial employee contribution of $24,500, and then 25% of whatever’s left.
    • $150,000 – $24,500 = $125,500, and 25% of $125,500 (or their allowed “employer match” as their own employer) is $31,375.
    • $24,500 (their “employee” contribution) + $31,375 (their “employer” contribution) = $55,875.
  • The SEP IRA would only allow them to contribute $37,500, whereas the Solo 401(k) allowed $55,875, simply because of the way the account contributions are structured.

The only reason the SEP IRA might make more sense at a net business income of $288,000 or above is because 25% of that net income is $72,000 maximum. In pretty much every other case, the Solo 401(k) will allow for more money to be contributed.

Now, that being said, the Solo 401(k)s:

1. Do have higher administrative burdens from a paperwork standpoint
2. Are really only tenable for people who are fully self-employed, as your employer 401(k) will make it function just like a SEP IRA

Other fun tax good-to-knows:

• You need an EIN to open a Solo 401(k), which is the number you get when you start a business and register it legally.
• While your SEP IRA contributions run April to April, Solo 401(k) employee contributions have to be made by December 31 (in other words, they run on a calendar-year basis), but employer contributions can be made up until the tax filing deadline of April 15. 

Here’s the good news: As of 2025, Betterment began offering a Solo 401(k). This is a huge development. I finally decided it was time to make the switch and opened my Betterment Solo 401(k) last month.

The process was pretty easy. I originally had to schedule a call to walk through it with a Betterment representative, but because they were able to confirm all my business details after I scheduled my onboarding, I was able to verify all the details over email if that was my preference (you can also keep the call if that makes you more comfortable). Betterment handles the paperwork. 

Let’s return to our order of operations

You may be wondering now how to incorporate this new blitzkrieg of information into everything you already know. Let’s create a funnel, shall we? This is an order you could consider depending on which investment accounts you have access to and your income. If I list anything that you don’t have (read: can’t have), just skip to the next thing. 

1. Employer-sponsored 401(k) [full-time corporate employee with a side hustle] or Solo 401(k) [full-time self-employed] up to $24,500
2. Roth IRA [everyone!] up to $7,500 per year [can do Backdoor if you need to, but remember that Backdoor Roth IRA folks will want to use a Solo 401(k) rather than a SEP IRA to avoid the pro rata rule]
3. SEP IRA [full-time corporate employee with a side hustle] up to ~20% of your net side hustle income, less half self-employment taxes up to $72,000 per year, or Solo 401(k)’s “employer match” feature [if you’re self-employed and knocked out the “employee” contribution in step 1]
4. Taxable investing account [regular ole’ investing with no fancy stipulations or limits, but the highest tax burdens, called “General Investing” in Betterment]

Easy, right? Just go out and earn hundreds of thousands of dollars and master tax law, and you’re good!

(Just kidding, but we are all in this together, figuring it out one step at a time.)

Betterment does not provide tax advice.