In this Episode of the Secure Your Retirement Podcast, Radon and Murs discuss the important transition from W-2 to 1099 income and what it really means to become a 1099 contractor. Whether you’re considering Consulting income as part of a career shift, semi-retirement, or exploring Consulting after retirement, understanding the differences between W-2 vs 1099 is critical. This shift impacts everything from how you receive income to how you handle Estimated taxes, Tax deductions, and overall Tax strategy—all essential components of effective Retirement Planning and Financial planning for retirement.

Listen in to learn about the key financial and tax implications of earning Consulting income, including Quarterly tax payments, Estimated taxes, and the realities of managing your own income stream. If you’re planning retirement or building a retirement checklist that includes self-employment, this episode will help you better plan for retirement, avoid costly mistakes, and create a path toward retiring comfortably and secure your retirement.

In this episode, find out:

• The key differences between W-2 vs 1099 and what it means to become a 1099 contractor
• How Consulting income impacts Estimated taxes, Quarterly tax payments, and overall Tax strategy
• Common misconceptions about LLCs and why they don’t automatically reduce taxes
• Important Tax deductions available to self-employed individuals, including the home office deduction
• How Consulting after retirement fits into broader Retirement strategies and Self-employed retirement planning

Tweetable Quotes:

“An LLC is a legal structure for protection—not a tax strategy that changes how your Consulting income is taxed.” – Radon Stancil

“When you move from W-2 to 1099, you’re not just earning income—you’re responsible for managing your entire tax strategy and financial future.” – Murs Tariq

Resources:

If you are in or nearing retirement and you want to gain clarity on what questions you should be asking, learn what the biggest retirement myths are, and identify what you can do to achieve peace of mind for your retirement, get started today by requesting our complimentary video course, Four Steps to Secure Your Retirement!

To access the course, simply visit POMWealth.net/podcast.

Here’s the full transcript:

Welcome back to the Secure Your Retirement show. And thank you for joining us. If you listened last week, 

Taylor and I kind of went through things that we need to be thinking about as we go from this world 

of W-2 employment to contract or consulting employment, which is typically how you get paid there 

is in the 1099 space. And so, in that last episode, we made quite a few comparisons to the W-2 

world. A lot of that world kind of takes care of. things for you without you realizing it, 

like taxation and benefits and things like that. And so, it’s more of a scenario where you can get 

on autopilot and just do your job and earn a salary, and a lot gets taken care of for you through 

your employer. When you flip over into the 1099 world, well, while you are receiving income from 

someone else, you’re also your own employer, and that’s what contracting and consulting looks like. 

And so, you have to do a lot more of that stuff yourself, like paying your taxes, setting up 

retirement plans or having your benefits in place, a lot of that falls on you as the employer while 

you are still the employee. So, while it is a very attractive space and there’s things that you can 

do to help your taxation in the 1099 world, it can be confusing or overwhelming at times. 

And so that’s why we recorded that episode. So, if you didn’t catch that episode last Monday, I 

would encourage you to go back and listen to it. It’s only about 20 minutes or so. Because today 

what we’re doing is a continuation. The way we ended the last episode was kind of hitting the 

basics, the high level of what you need to be thinking about. But then when you get your business 

figured out and you get your income rolling in the consultancy space and you have more income than 

you need, well, there’s things that you want to be thinking about when it comes to retirement 

savings. When you’re working in a W-2 type of environment, it’s… 

by default, that you’re going to consider saving into a 401k plan. Most companies are offering those 

today. So, uh, it’s almost by default when you’re working in the consulting world, you have to 

understand your income. You got to understand your expenses. your cash flows before you can start 

to think about how much can I save once you understand your surplus of how much can I save well 

then I think there’s a really good opportunity for savings into various types of plans and so the 

focus for today is going to be self-employment retirement accounts so before I go any further it’s 

always a pleasure to have Taylor here with us. Taylor, by the way, is our Director of Financial 

Planning and Tax Strategy at Peace of Mind Wealth Management. She brings quite a bit to the table, 

helps our clients through tax strategy meetings, help them think through all types of things when 

it comes to their financial life. And so, Taylor, thank you for being here today. Yeah, thank you. 

All right. So, we’re going to jump right in. And so, let’s go with the scenario of I’ve been doing 

the consulting work. I’ve kind of figured it out and I’ve got excess income. And your choices are 

basically, do I pay tax on that excess income or do I try to shelter it by saving into retirement 

vehicles? And in the self-employment space, the nice part is you get to kind of choose what type 

of plan is going to be best fit for you. Whereas in a W-2 world, well, it’s pretty much the plan 

that’s offered by the employer itself, usually a 401k or a 403b. But you don’t really have choice 

there as far as selection. So here in the self-employment world, you’ve got choice based off of 

what’s going to work best for your company. So, let’s keep it simple, Taylor. Let’s start. And 

sometimes I think this one gets overlooked because everyone wants to get fancy before they cover 

the simple pieces. And so, let’s just start with the traditional IRA and Roth IRA types of accounts 

and the contribution rules there. Yes. Okay. So, you don’t actually have to be self-employed to 

make contributions to a traditional IRA and or Roth IRA. You can still open these accounts and 

contribute to these accounts as a W-2 employee. But yeah, some people overlook this because it’s 

kind of the basic starting point. All you have to have is some form of earned income. 

So, if you are self-employed, you have to have some income coming from your self-employment. It is 

probably the easiest account to open. Flexible investment options available to you. 

But one thing to be aware of is… of the options we’re going to talk about today this probably has 

the lowest contribution ability or limits on it and the other thing to be aware of is the income 

limitations associated with making these contributions so first if we’re going to look at just the 

traditional IRA the benefit to this is you If you’re within the income limits, 

take a deduction for the contribution that you make, which means you don’t pay tax on the 

contribution in the year that you make it. you’re going to pay tax later on down the line when you 

take distributions from your traditional IRA. So that’s the benefit there. You don’t pay tax on the 

contribution. You will pay tax on the distribution later on. If you’re going to make a traditional 

IRA contribution this year for 2026, the maximum amount you can contribute is $7,500. 

But if you are over the age of 50, you are allowed an additional $1,100 in the form of a catch-up 

contribution. So, if you’re over the age of 50, total contribution limit is going to be $8,600. 

That contribution amount does change year to year. So, make sure whatever year you’re looking at 

contributing for, you’re looking at the contribution limit for that year specifically. And then as 

far as the income limitations, it depends on your tax filing status. So, if you’re filing single in 

order to make a deductible traditional IRA contribution, your Modified adjusted gross income needs 

to be between $81,000 and $91,000. Or I’m sorry, 

to make the full contribution, your income needs to be below $81,000. If you’re in between $81,000 and $91,000, you can make a phased-in contribution depending on where you fall in that 

range. And then if you’re above $91,000, you cannot make a deductible contribution. 

So, pay attention to those limitations. 

If you’re filing jointly, there’s different figures. It’s a little bit more complex because it 

depends on if your spouse has a retirement workplace plan that they’re contributing to. 

So, there’s different figures there just depending on your situation. You can look up the income 

limitations, but it may be something that you need to have a conversation with us about to kind of 

confirm where you fall. Yeah. So bottom line there on the traditional IRA, if you’ve got earned 

income. then you may be eligible, you are eligible to contribute. 

The question is, how much earned income do you have? then how much of that of the contribution is 

going to be tax deductible. So that’s the pre-tax type of bucket. 

What about the Roth IRA? Yeah, so the Roth IRA has the same dollar. income or dollar contribution 

amount. So, the 7,500 if you’re below age 50 or 8,600 if you’re over age 50. 

And the difference with the Roth IRA is that you do pay tax on the contribution today when you make 

that contribution into the account. The benefit is that once you have made that contribution, it 

grows tax-free inside of that account. So, when you take distributions, you will not pay tax. 

So, kind of opposite effect of the traditional IRA. So, whether you’re doing traditional or Roth, 

there are some similarities, but really the tax difference and the tax impact it’s going to have on 

you when you make the contribution is the main difference to be aware of. Yeah. So, I’d say this 

really should be the starting point for anyone walking into consultancy or 1099 type of work. 

until you really understand what your saving ability is going to be. For example, if you know the 

most that you can save in a given year is going to be $5,000, well, the next few strategies that 

we’re going to talk about… are probably not worth exploring until you get to a place where you 

are able to, you want to fund more than the contribution limits, which is in that, you know, 7,500 

below 50, or what is that math, 8,600 or something like that if you’re above the age of 50. 

So, if you get to where you’re saving 10, 15, 30, $100,000 a year, then the traditional IRA and the 

Roth IRA is not going to be good enough. And so that’s where some other strategies can come into 

play. The next one that we see and want to talk about is called a SEP IRA. 

SEP is short for Simplified Employee Pension and an IRA attached to it. 

So now this is getting into… bit more of a, I wouldn’t say complex yet, but I would say for any 

of the strategies going forward, you want to be working with someone like Taylor or a CPA or an EA 

that understands these rules, understands your business income, and is going to help you choose 

which one’s going to be right for your business. So, let’s talk about the SEP IRA, Taylor. Yeah, 

so, SEP IRA, now moving away from, in comparison to the traditional and the Roth IRA, SEP IRA is 

more specific to those with self-employment income now. So, the SEP IRA is different because the 

contribution limit is not a dollar amount, but it’s a percentage of your income now. 

Technically, for SEP IRAs, only the employer makes contributions, 

which if you’re self-employed, you are both the employer and the employee. But if you’re 

categorizing where the contribution is coming from, technically, it’s the employer side. 

So, with a SEP IRA, the contribution limitation is going to be about 20% of your net self 

-employment income. 

When you file your tax return, your self-employment income shows up on your schedule C. Add up all 

of your income that you receive, whether that be from one source or various sources. List out all 

of your expenses. Subtract your expenses from your income. That’s your net self-employment income. 

You also have to subtract out some of your self-employment tax that you pay. But all this 

calculation is taking place on your tax return itself. And then you’re taking about 20% of that 

net amount to determine your dollar contribution. So, I usually tell people it makes sense to… 

Get your tax return about 99% of the way complete and do the contribution calculation as part of 

your tax return filing before you know what that contribution amount is going to be because you do 

have to know your net self-employment income first. So, it may not be something that you are able 

to contribute to until your tax return filing is taking place, really. Right. 

So easy example. Let’s say my net. My net self-employment income after I deduct my expenses and 

all that stuff, let’s say it’s $100,000. Taylor, how much can I put into my SEP IRA for that 

calendar year? So, you’ll be able to contribute about $20,000. $20,000. So more than the 

traditional IRA limitation. So, what’s the pros here? 

Why would someone want to do this over some other plans? Yes, similar to the traditional IRA, 

SEP IRA contributions are deductible in the year that you make the contribution. So, in our example, 

if your net self-employment income is $100,000 and you’re able to contribute $20,000 to your SEP 

IRA, you will not pay tax on that $20,000 in the year that you make the contribution. 

Later on, when you take distributions from your SEP IRA, that is when you will pay the tax. 

Okay, well, great. And so, there’s a max amount that we can put into these types of accounts, 

right? Yes, there is. That’s another important element to be aware of. 

So, the maximum amount, again, this is for 2026. It changes year to year, but the maximum amount you 

can put into your SEP IRA is going to be $72,000. And what if I have an employee? 

Then how does this work? Yeah, it does get a little bit more complicated. If you have a business, 

you’re the business owner with employees, W-2 employees, then you have to make contributions to 

your employees, SEP IRAs as well, equal to the amount that you are contributing for yourself. 

So, if you do have employees as part of your business, that’s something to be aware of. That may 

help you determine how much you contribute to your own plan because you have to be able to. afford 

to contribute the same percentage to your employees plans right so probably not the best type of 

plan if I’ve got five employees and most of them are hourly wage types of employees and I’m the 

high income earner um yes definitely best if you’re solo It’s just you. 

There’s no employee involvement. Speaking of solo, the next one that a lot of people will relate to 

is a solo 401k. In the W-2 space, you get access to 401ks, 

403bs through the employer that you’re working for. You can actually create your own in the self 

-employment world. Let’s talk about the solo 401k. Yes. So again, the solo 401k is going to be best 

for those who do not have employees because having employees can also complicate the solo 401k 

contribution rules. But similar to the SEP IRA with your solo 401k, 

you will not be paying tax on the contributions to the plan. 

You will pay tax later on down the line when you take distributions from your solo 401k. 

The solo 401k allows for higher contribution limits than the previous plans that we have talked 

about, because now it opens up to allowing for both employee and employer contributions, 

which again, if you’re sole proprietor, it’s just you in the business, you are both employee and 

employer, but you’re able to contribute from both sides of that. 

So as the employee, again, you have to have earned income up to these limitations. So, you can’t be 

contributing more than the income you’re earning from your self-employment. But the maximum amount 

you can contribute first as the employee is going to be up to $24,500 for 2026. 

There are also catch-up contributions allowed for solo 401ks. So, if you’re over the age of 50, 

you can contribute an additional $8,000. Or if you’re between the ages of 60 and 63, 

this is… rule in the last few years that we’ve added because of secure act 2.0 but if you’re 

between 60 and 63 your catch-up contribution is an additional of 11 250 for 2026 so its kind of 

depends on where you’re at as far as age range and where your self-employment income lands but 

that’s kind of what you can consider as the employee contribution to your solo for and then the 

other on the flip side is the employer again, can contribute an additional 20% of your net self 

-employment income. So, similar to the SEP IRA as far as the employer contribution, but opening it 

up to employee contributions between those two contribution types combined is going to be higher 

than the SEP IRA. Right. 

You can put a lot of money into these types of plans and so they can be rather beneficial. 

So, what are the pros and cons here, Taylor, as someone needs to think through between maybe a SEP 

and an individual or solo 401k? Yeah, the solo 401k, I will say it does require more paperwork and 

more maintenance. It can be a little bit more complex to set up for that reason than in comparison 

to like the SEP IRAs might be a little. simpler on the administrative side so that’s something to 

be aware with a solo 401k needs to be worth it you need to be able to make those higher 

contributions in order for it to be worth it because that is the main benefit of the solo 401k is 

higher contribution limits in some cases too depending on the custodian that you open your solo 

401k with they may allow you to make Roth solo 401k contributions So that’s also something to 

consider where now it’s kind of like the Roth IRA where you’re not taking a deduction for the 

contributions. You will pay tax on the contribution so that it can grow tax-free for the future. 

So, the solo 401k, you can have both. Similar to if you’re a W-2 employee. A lot of the times as a 

W-2 employee, you have the choice between traditional 401k or Roth 401k contributions. 

Yeah, just important to keep track of those things and be aware of your situation and what is going 

to benefit you as far as your contribution ability. Yeah. So, with both these plans so far, the SEP 

IRA and the Solo 401k, there is some upfront thought that’s needed and then some upfront, I 

wouldn’t call it a headache, but it’s just paperwork to kind of navigate through. I think once you 

get them set up and get your first year’s contributions in, you know, going forward, 

it’s a lot easier to administer. But just that initial setup phase, 

and both of these have little to no cost associated with them. It’s not like you’re working with a 

specialty type of fern to get these types of plans or anything. It’s really just knowledge and 

understanding the rules and requirements. So, once you get them set up, I think they are much easier 

to manage, unlike some of the other ones that we’ll talk about next. that require a little bit more 

attention every single year and more math and calculation. So, let’s talk about, now this one’s not 

as common as it used to be. I think, you know, 20 years ago, people were talking more and more 

about this, what’s called a simple IRA. And I think the distinction here is if you do have 

employees, this could win out over a solo 401k or a SEP IRA. So, let’s talk about the simple IRA. 

But everyone listening realized that not many people are utilizing this type of account today. So, 

and I think you’ll see why you’re in a minute. Yeah, definitely less common. I think the main 

benefit to the simple IRA is that it does limit the contributions you have to make as the business 

owner to your employee’s account. So, if you do have employees and you’re offering retirement plans 

to those employees, the simple IRA places limitations on what you as an employer are required to 

contribute to your employees’ plans. So as the employer with a simple IRA, 

you have to either match up to 3% of your employees’ contributions, 

or you have to contribute 2% of all of your employees’ compensation to their simple IRAs. 

So, if we think back to the SEP IRA, where if you have employees there, you have to make the same 

percentage contribution to your employees’ plans that you’re making for yourself. Now, 

the simple IRA places some limitations on that. So, you’re looking at either the 3% match or the 2% contribution, non-elected contribution to your employees’ plans. 

So, let’s clarify that one really quick. So, 3% match. So that means what? 

If the employee is contributing, let’s say they’re contributing 10% of their own income, 

their own salary, 3% match would be? because they are contributing, 

right? Yes, exactly. If they’re contributing 10%, you as the employee is now required to contribute 

3%. And if they’re not contributing at all, how does that work? If they’re not contributing at all, 

you’re not required to contribute at all. You’re only required to contribute up to their 

contributions of 3%. So that’s kind of where you have to make a determination, too. 

If you do have the simple IRA, if your employees are going to contribute, then maybe you go with 

the non-elective 2% contribution across the board. You have to put 2% in every employee’s 

account, whether they are contributing or not. where the matching contribution is dependent on 

whether your employees make that contribution or not so it’s one or the other if they’re if they’re you either go the match route and then you’re subject to matching up to three percent if 

they’re contributing or you say I don’t want to deal with that let me just give everyone two 

percent regardless of if they’re contributing or not yes okay what else you got on the simple 

contribution limits on the simple IRA are lower than the solo 401k. 

They are dollar amounts rather than the percentage amounts like we talked about with the SEP IRA. 

So, in 2026, you can contribute $17,000 to the simple IRA. 

Symbol IRAs also have catch-up contributions. So, if you’re over the age of 50, you can contribute 

an additional $4,000 as your catch-up. Or if you’re between the ages of 60 and 63, 

you can contribute an additional $5,250 as your catch-up. 

So, another consideration just depending on… how much you have available to contribute and what 

you want to contribute. Simple IRAs, those contributions are going to be pre-tax or deductible for 

the year that you make those contributions. Okay, very good. Well, we’ve got one more for you. 

This one is, I would say, if you’ve checked all the boxes on all the different ways that you can 

save and within your business. So, let’s just say you did open up a solo 401k. 

And you have fully maxed that out. So, the employer side, the employee side, you know, 

adds up to, I don’t know, somewhere in the realm of you could put in 80-ish thousand dollars a 

year based off of the contribution limits for the year. And so, you’ve done that and you’re like, 

I still have a lot of excess income, and I don’t want to pay tax on it. Well, there is this thing 

called a defined benefit plan. most of you are going to recognize the word called a pension. 

Now today with large companies or with companies in general, pensions are few and far between 

today. Go back 20, 30, 40 years, they’re a rather common thing that was provided within benefit 

packages for companies. So, you can set up what’s called a defined benefit plan or a pension if you 

want to find ways to save even more, shelter even more taxable income that your business is 

generating. But this one is a little bit more complex. 

This one does have costs associated to be able to run this type of strategy. But if you think it 

through and you’re sheltering quite a bit, which means you’re not paying tax on it in the 22, 24, 

30 percent brackets, that cost can be totally worth it. So, let’s talk in a high level about the 

defined benefit plan, Taylor. Because they are a little more complex and require more in 

setup costs and maintenance, the defined benefit plan is kind of the last stop after you have 

already explored all of the other contribution retirement plan types. 

So defined benefit plans are going to be best for those that are high income business owners. 

The contributions are not a dollar amount, but they’re There is an actuarial calculation that has to 

take place based on your age, based on your income, based on your contribution timeline that takes 

place. So, it’s not a set dollar amount. It really just depends on you and your situation as far as 

what you’re going to be able to contribute. But it could be hundreds of thousands of dollars a 

year, depending on your situation. So, if you are going to the defined benefit plan, it’s because 

you do have. 100 200 300 000 that you are looking to put into a retirement account the 

contributions are tax deductible so that is the benefit there you’re not going to pay tax on those 

dollars that you are contributing to the account, so when you are in that situation of having really 

high income that is going to be the benefit to you you’re not going to be paying tax on those 

contributions unlike the other plans that we have talked about previously the SEP IRA the solo 401k 

Sometimes it’s simple. Those contributions are more of a choice. 

You can put up to the maximum amounts, but you’re not ever required to. 

In comparison, the defined benefit plan is much less flexible with contributions. 

You are going to be required to make those amounts. So, it is more of a commitment as well to have 

this type of plan and manage it over time. Right. So, you before you go into it, you want to fully 

kind of understand what it looks like, how it works and the commitment around it and to make sure 

it’s beneficial to your business. So, of, you know, the traditional IRA, 

the SEPH IRA, the solo, the simple, these can really these are just done through knowledge and 

knowing how to open these types of accounts up. And there’s minimal cost there, 

really more your time. And if you’re working with a CPA, their guidance, or if you’re working with 

us, the time spent just trying to figure it out. But with a defined benefit plan, you really do 

have to bring in a specialist in a way that does work in this space and knows how to do the 

actuarial calculations. And that’s kind of ongoing year by year. 

And if you have more employees that you want to bring into this type of plan, it gets you a little 

bit more complex as far as the accounting work around it. Because at the end of the day, you’re 

kind of putting money into one bucket. And so, the accounting around the defined benefit plans 

really has to be very tight and done properly. So tremendous benefit to it if you qualify, 

if your income is high enough and your savings desire is high enough. Not 

one that you want to jump right into without exploring all the other options first. Anything else 

to add, Taylor, before we wrap up here? I don’t think so. Yeah, I think that’s it for me as far as 

what’s been on my mind. Yeah, I think this is good enough. I imagine if you’re listening in the car 

right now, your eyes could be glazing over a little bit because there’s a lot of numbers, a lot of 

types of plans, a lot of options to think through. And so, you know, for that reason, what we 

always offer is if you say, I am jumping into consultancy, I need to understand how this works a 

little bit better. And, you know, that’s a big part of what we do is we help people kind of think 

through not just retirement life, but also as they are getting approaching into it and have these 

life changing events of what we know. And we help people navigate that all the time on the 

financial side. But also, this is very much a tax type of conversation. So, Taylor, thanks again 

for hopping on with me today. I know our listeners are going to get tremendous benefit out of this 

today. Yeah, thank you. All right, everyone. Thank you for listening. Thanks for tuning in. As 

always, we’re happy to hop on a phone call with you. Go to our website, pomwealth.net, and you’ll 

be able to schedule a call with one of our advisors, and then we will take it from there. But 

thanks for tuning in. Have a good Monday