{"id":494,"date":"2022-05-23T12:00:00","date_gmt":"2022-05-23T12:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/the-simplest-optimal-accounts-for-earners-with-w-2-and-self-employment-income\/"},"modified":"2025-08-29T20:15:45","modified_gmt":"2025-08-29T20:15:45","slug":"the-simplest-optimal-accounts-for-earners-with-w-2-and-self-employment-income","status":"publish","type":"post","link":"https:\/\/moneywithkatie.com\/the-simplest-optimal-accounts-for-earners-with-w-2-and-self-employment-income\/","title":{"rendered":"Tax-Optimized Investing Strategies for Full-Time Workers with Side Hustles"},"content":{"rendered":"
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Hint: You may not need that Backdoor Roth IRA<\/span><\/a> after all.<\/p>\n

Blasphemous, I know\u2014and while I\u2019m sure this article will apply to a pretty niche segment of my audience, I had an important realization the other day that I feel I must share:<\/p>\n

Most full-timers with side hustles (hello, millennials) aren\u2019t taking advantage of the amazing tax benefits available to them. <\/h2>\n

Why does this matter, you ask?<\/p>\n

\u201cKatie, your fancy alphabet soup accounts do not interest me. I have a Robinhood account and I\u2019m not afraid to use it.\u201d <\/p>\n

But don\u2019t you want tax benefits?!<\/em> Let\u2019s qualify just how much money we\u2019re talking here. Assuming you\u2019re investing $10,000\/year for 40 years (illustrative purposes only) and get a 7% average real rate of return, the difference between investing in tax-deferred\/tax-sheltered accounts or outside<\/em> tax-deferred\/tax-sheltered accounts is *clears throat* $1.8mm and $3.6mm. <\/p>\n

It doesn\u2019t look like much in the first few years, but tax drag is not your friend. If having an extra $2mm in 40 years is interesting to you, it\u2019s worth it to minimize tax drag wherever possible. Take a look:<\/p>\n<\/div>\n

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Assumes 2.9% inflation, a 25% federal tax rate, and a 6% state tax. Assuming inflation is consistently higher over time (let\u2019s say, 8%), the difference is nominally the same, but your purchasing power of both amounts is lessened. <\/p><\/div>\n

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Today, we\u2019re going to break down the two most optimal account mixes<\/em> for people who have both W-2 income and<\/em> self-employment income from a side hustle (commonly referred to as 1099 income here forward, because I\u2019m fancy like that, and so are you). One additional heads-up: This post will not address <\/em>HSAs for simplicity\u2019s sake, but I like those<\/a>, too. <\/p>\n

Got it? <\/p>\n

W-2<\/strong> = wages from beneficent Corporate Overlord from which taxes are already deducted<\/p>\n

1099<\/strong> = income from side gigs from which taxes are not<\/em> already deducted<\/p>\n

Having both types of income opens you to myriad possibilities with respect to fancy tax footwork\u2014so let\u2019s dig into the best two combinations.<\/p>\n

Combination #1<\/strong>: Employer-sponsored 401(k) or equivalent account + Solo 401(k) + Roth IRA\/Backdoor Roth IRA<\/h2>\n

This is technically the most optimal<\/em> from a tax standpoint, but a little more complicated, and potentially unnecessary. <\/p>\n

At first, this path seemed like the only universally viable one. Here\u2019s why: <\/p>\n