A solo 401K, however, is a more complex beast than a SEP-IRA.
The other way to turn the 401(k) or IRA into a non-countable asset – is to make the asset disappear and liquidate the account.
Your elder law attorney would then be able to shelter the assets with a spenddown strategy, special needs trust, Medicaid compliant annuity (or some combination thereof).
Here’s a great calculator I found that tells you how much you could put away in each type of plan for your given income. After age 50, you can put $50K per year into a SEP-IRA. You shouldn’t borrow from either, but at least the option is there in case of catastrophe. SEP-IRAs must be taken into the pro-rata calculation when converting non-deductible IRAs to Roth IRAs. This not only allows you some tax diversification benefits, but also allows you to save more money in a tax-protected manner, since after-tax money is worth more than pre-tax money. Although most states protect IRAs and 401Ks equally from creditors, at least two (MN and SC) give additional protection to 401Ks over IRAs. Yet I have used a SEP-IRA several times and have never opened a Solo 401K. You can always roll the SEP-IRA over into a solo 401K if you change your mind.
I recently had a potential client call me up and state confidently – “I need Medicaid, but I know I won’t qualify because I have a large amount of money saved in my 401(k).”It is true that qualified retirement accounts such as a 401k, Individual Retirement Account (IRA), or SEPs are usually large assets.
This is because after the Medicaid recipient passes away, the beneficiaries would then be entitled to the remaining amount left over.
This takes careful planning, and certain steps need to be taken in a very specific order.The amount placed into a SEP-IRA is 100% tax-deductible.You take this deduction on line 28 of the Form 1040.Elder law attorneys who engage in Medicaid planning have a variety of strategies to choose from depending on what asset(s) and income sources they need to protect.With a 401k or IRA, there are two options to choose from: At the right time, just before the application is submitted, coordinate with the financial advisor or holding institution to put the retirement account into payout status, taking the required minimum distribution (RMD).Sep-IRA vs Solo 401K If you work as an independent contractor, meaning you get a Form 1099 each pay period instead of a W-2, you’re responsible for your own benefits, including a retirement plan.