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Can I open a Solo 401k?

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I live overseas and earn a salary higher than the foreign income exclusion limit. My income is right around the 28% tax bracket. I will start working on a side-project for a US-based company on a 1099. I don't have an immediate need for any of the money that I will earn on the side. Can I open a solo 401k from Vanguard and deposit put 100% of my earnings there to avoid having to pay federal income taxes? I expect the amount earned in 2017 to be less than $18k.

My understanding is that when I file taxes, even though I don't owe federal income taxes, I will owe self-employment tax on the income. Is this correct?
I have a MI driver's license. Will I have to pay state income taxes to MI even though I don't live there?

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are you in india? Don't they have a treaty with US re: double taxation?

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needhelpplease said:   are you in india? Don't they have a treaty with US re: double taxation?
  
Switzerland. I exclude my income earned here up to the limit, then I receive a tax credit for taxes paid in Switzerland. However, income earned in the US is unaffected by any of this.

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Are you a US citizen? Were you a resident of MI when you were last living in the states? Have you been out of the US for 330+ days?

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Yes, I am a US citizen. When I moved I had a TX license, which expired. I was getting my mail at my mom's house in MI, so it was easy for me to get a MI license one time while visiting. Yes, I spend more than 330 days outside of the US every year.

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You could do a SEP IRA and contribute to that to reduce your taxes. You'll still be on the hook for self employment taxes in the end thought - 15%, half of which will be tax deductible.

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Wouldn't a solo 401k make more sense than a SEP IRA? With the solo 401k, I can contribute 100% of income up to $18,000. With SEP, I can only contribute 20% of net income.

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This is a bit complicated and I'm not a professional....
I think you need to look into the state tax laws of Texas, Michigan, and whichever state the US company issuing a 1099 is based. It's up to the individual states whether they can put a claim on you for taxes. It's much more than just where you had a drivers license. Some states it's the number of days you're present in that state and in some states it's drivers license, voter ID, where you bank, etc. Some states like California (I think) will tax you because you're employed by a company in that state. It becomes more complicated if that company has offices in multiple states. Your direct boss or the person that engaged your services could be in one state and the company is headquartered in another state.

EDIT: Actually I don't think Texas has a state income tax, right? So no issue there. If it's on the edge (or you might get future income from the US), maybe you can reasonably claim you're still a resident of Texas. It's good to be a resident of a state that doesn't have a state income tax.

Separately I researched...
I think the solo401k is designed if you continue to be self employed. It's unclear to me if you don't remain self-employed if you lose the tax advantaged status or maybe that you weren't intending to actually operate a business and therefore not eligible for the solo401k in the first place.

Gosh better shut up now and hopefully someone else that knows more can educate me as well.

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This tax Q&A suggests that your SE tax is unaffected by your 401k contributions, so I think you'll still owe SE tax even if you contribute everything you earn to a pretax / traditional 401k.  

http://community.hrblock.com/t5/All-Things-Tax/How-to-Report-Sol... 

If you want to use Vanguard, don't tell them you're out of the country - they tend to deny people accounts for that and force existing people who move overseas to close them if they notice.  Fidelity is supposed to be a decent choice.

i would have tried to keep your TX DL and residency given you're abroad anyway to avoid state tax.  If you claim MI as your residency, I think your investment income might get taxed by them even if most of your salary gets excluded under the foreign income exclusion.  State residency is a facts and circumstances thing, but it would be better for sure if you were a TX resident.  If you never file MI, they probably have no way of knowing to argue about it, and most expats keep their last state of residency from before they moved abroad so it's not unreasonable to claim TX (but that may depend on other details, how much you have to do with MI, etc).  

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xerty said:   If you want to use Vanguard, don't tell them you're out of the country - they tend to deny people accounts for that and force existing people who move overseas to close them if they notice.  Fidelity is supposed to be a decent choice.
 


Thanks for this. If I didn't get an answer from this forum, my plan was to call them up and ask for an appointment with a CFP, and talk to them. I think I will just avoid that for now.
 

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