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Started By
Message
My 20 year old son will be bringing in 40-50k per month for the foreseeable future.
Posted on 6/6/25 at 4:10 pm
Posted on 6/6/25 at 4:10 pm
So, my 20 year old is going to college and studying marketing. He’s been a gaming kid ever since he’s been able to play video games. It’s become a passion of his. He’s joined with a number of other online gamers to design a game for Roblox. The game is top 5 on the platform. It’s a relatively new release, since January. He has 5% monetary ownership in the game revenue.
I have my own personal accountant and financial guy that will be helping him manage the money he will have coming in. We will be meeting in the coming weeks.
I’m sure they will be giving him good financial advice going forward but I wanting to pick the brains of those in this forum to see what steps you would take if you had a kid in a similar situation and how it may differ from the advice we will be given.
He has hardly any expenses and is getting paid as a 1099-NEC. I know he will need to set aside 30-40% for taxes and I plan on setting him up a solo 401k to minimize his tax burden.
It appears as though he will have close to 400k by the end of the year and, if the game stays relevant, probably around 600k next year.
Is there any other tax advantage or tax structure I should set up for him and is it better for him, at such a young age, to do a traditional solo 401k or a solo 401k Roth?
I have my own personal accountant and financial guy that will be helping him manage the money he will have coming in. We will be meeting in the coming weeks.
I’m sure they will be giving him good financial advice going forward but I wanting to pick the brains of those in this forum to see what steps you would take if you had a kid in a similar situation and how it may differ from the advice we will be given.
He has hardly any expenses and is getting paid as a 1099-NEC. I know he will need to set aside 30-40% for taxes and I plan on setting him up a solo 401k to minimize his tax burden.
It appears as though he will have close to 400k by the end of the year and, if the game stays relevant, probably around 600k next year.
Is there any other tax advantage or tax structure I should set up for him and is it better for him, at such a young age, to do a traditional solo 401k or a solo 401k Roth?
This post was edited on 6/7/25 at 11:57 am
33
Posted on 6/6/25 at 4:16 pm to Asleepinthecove
I can’t give any advice, but wow, congrats to your son.
Posted on 6/6/25 at 4:17 pm to Asleepinthecove
I was in a similar position when I was your son.
If he is getting paid as 1099 (and not royalties / distributions) I would say he should do the following:
Create LLC (not 100% necessary, but it is good for a few reasons, seperating liabilities, making it "feel" more like a business).
1) Create solo 401k or SEP IRA with LLC. Max it out
2) Draw a normal salary. $50-100k/yr
3) Invest the majority of the rest in index funds (VTI is my recomendation)
4) Keep some retained earnings to try to expand business if you think that is at all possible.
If he is getting paid as 1099 (and not royalties / distributions) I would say he should do the following:
Create LLC (not 100% necessary, but it is good for a few reasons, seperating liabilities, making it "feel" more like a business).
1) Create solo 401k or SEP IRA with LLC. Max it out
2) Draw a normal salary. $50-100k/yr
3) Invest the majority of the rest in index funds (VTI is my recomendation)
4) Keep some retained earnings to try to expand business if you think that is at all possible.
Posted on 6/6/25 at 4:24 pm to ryanthe4aces
Roth should be a no-brainer for anyone that can afford to contribute
Posted on 6/6/25 at 4:26 pm to Asleepinthecove
quote:I am no expert, but I'd strongly consider maxing out a Roth 401k. I know it's post tax, but he'll have at least 40 years of tax free growth.
I plan on setting him up a solo 401k to minimize his tax burden.
Posted on 6/6/25 at 4:34 pm to FortunateSon
quote:
I am no expert, but I'd strongly consider maxing out a Roth 401k. I know it's post tax, but he'll have at least 40 years of tax free growth.
That’s always been my dilemma, do I do traditional vs Roth but, by the time I had the option, I was in my 40’s and just opted to stay with traditional and put the tax savings amount into a separate post tax investment account. I figured with his young age, the Roth might be the way to go. Especially since he doesn’t currently have any debt and can afford to pay the taxes. He still lives at home and commutes to school. I know he has been itching to move out on his own but I told him to wait until he can maybe buy something, instead of renting.
Posted on 6/6/25 at 4:36 pm to ryanthe4aces
quote:
I was in a similar position when I was your son. If he is getting paid as 1099 (and not royalties / distributions) I would say he should do the following: Create LLC (not 100% necessary, but it is good for a few reasons, seperating liabilities, making it "feel" more like a business). 1) Create solo 401k or SEP IRA with LLC. Max it out 2) Draw a normal salary. $50-100k/yr 3) Invest the majority of the rest in index funds (VTI is my recomendation) 4) Keep some retained earnings to try to expand business if you think that is at all possible.
Thanks! I was thinking if a business structure would be beneficial for him but I am not familiar with all of his options. I know there can be some tax benefits if the business tax is lower than his personal tax to where he would be paid a salary from his business.
Posted on 6/6/25 at 4:36 pm to ryanthe4aces
quote:
I was in a similar position when I was your son.
Posted on 6/6/25 at 4:39 pm to Wraytex
quote:Roth has income limits.
Roth should be a no-brainer for anyone that can afford to contribute
Posted on 6/6/25 at 4:49 pm to Asleepinthecove
Set him up a Health Savings Account and max it out. That is 100% tax deductible.
There are alot of good things about an HSA and tons of good videos on youtube that can explain it better then me.
There are alot of good things about an HSA and tons of good videos on youtube that can explain it better then me.
Posted on 6/6/25 at 4:55 pm to RoyalWe
quote:
Roth has income limits.
Maybe he can setup a Solo Roth 401k? Individual Roth IRA is definitely out.
Posted on 6/6/25 at 5:00 pm to RoyalWe
Is the solo 401k amount 70k now or a certain percentage of net pay? If he makes 400k, he should be able to contribute the max.
Posted on 6/6/25 at 5:02 pm to RoyBoy2323
quote:
Set him up a Health Savings Account and max it out. That is 100% tax deductible. There are alot of good things about an HSA and tons of good videos on youtube that can explain it better then me.
Can he do a separate HSA if he’s still on my health insurance plan? Would I have to kick him off and make him go that route?
This post was edited on 6/6/25 at 5:10 pm
Posted on 6/6/25 at 5:17 pm to Asleepinthecove
At that income level I would not go Roth. That money is being taxed at 35% today. Solid chance it will be taxed less down the line. Sure, by going traditional you will have to pay taxes when it comes out, but to me, that's not enough penalty to have less money being invested for 40+ years.
Posted on 6/6/25 at 5:21 pm to JohnnyKilroy
quote:
At that income level I would not go Roth. That money is being taxed at 35% today. Solid chance it will be taxed less down the line. Sure, by going traditional you will have to pay taxes when it comes out, but to me, that's not enough penalty to have less money being invested for 40+ years.
My thoughts were if you did traditional and then you took the amount of money saved in what you would have paid in taxes by not going with the Roth option and you put that money in a separate brokerage account, you would be better off in the end. It’s like having an extra 20-25k to invest, depending on what his tax liability would be. The problem is, most people are probably not that disciplined to invest that additional amount.
Let’s say he makes 400k and can put 70k into a solo 401k. If he opts to do it traditional, he’s only taxed on 330k income. Based on what Grok said, he would save 25k in taxes. Now if he took that 25k and invested it annually in a separate brokerage account, wouldn’t he be better off in the end vs doing an up front Roth?
This post was edited on 6/6/25 at 5:29 pm
Posted on 6/6/25 at 5:31 pm to Asleepinthecove
400k at 20. He just needs a few years of that to set him up for life. Nice!
Posted on 6/6/25 at 5:32 pm to Asleepinthecove
Is that Basketball:zero?
Posted on 6/6/25 at 5:39 pm to Asleepinthecove
He needs to put college on hold and work to retain his position in this group.
Posted on 6/6/25 at 5:40 pm to Asleepinthecove
1) solo 401k - traditional will definitely decrease his tax burden but there can be an argument to consider Roth contributions given his age and if the tax burden is accounted for(he's going to be paying 120k+ in federal taxes alone)
- schwab for sure allows you to do both trad and Roth 401k contributions as thats what I have. I think fidelity does as well. Can certainly diversify
- Alternatively can look into a checkbook 401k or mysolo401k, if you want a custom plan to allow you/him to invest in things outside of the normal brokerage offerings.
2) can do a backdoor Roth ira contribution. This can be a nice way to get some diversification while allow you to still take advantage of the trad 401k tax deferral
3) of course can always consider real estate etc.
4) last piece of advice, don't let the tax tail wag the dog. Sure look for your deductions/legitimate expenses etc. But don't go spending money, expense big purchases just to get a tax "write off". Having a meeting with a cpa would at least allow him to see what can be legitimate deductions/expenses to pursue. The federal and state are going to get the share. He'll still be pulling in enough money monthly to live a good life for the time being.
- schwab for sure allows you to do both trad and Roth 401k contributions as thats what I have. I think fidelity does as well. Can certainly diversify
- Alternatively can look into a checkbook 401k or mysolo401k, if you want a custom plan to allow you/him to invest in things outside of the normal brokerage offerings.
2) can do a backdoor Roth ira contribution. This can be a nice way to get some diversification while allow you to still take advantage of the trad 401k tax deferral
3) of course can always consider real estate etc.
4) last piece of advice, don't let the tax tail wag the dog. Sure look for your deductions/legitimate expenses etc. But don't go spending money, expense big purchases just to get a tax "write off". Having a meeting with a cpa would at least allow him to see what can be legitimate deductions/expenses to pursue. The federal and state are going to get the share. He'll still be pulling in enough money monthly to live a good life for the time being.
Posted on 6/6/25 at 5:40 pm to Asleepinthecove
He needs a personal LLC...learn how to use a Schedule C and D
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