I'm Self-employed in the US. 2010 was a good year, and I am facing a big income tax bill. Will owe $18-20k in April. I can reduce that significantly if I max out my solo 401k at $45k. Haven't made any retm't contribs for 2010 yet.
I won't generate enough cash to both make the contrib and pay the taxman by April.
I'm looking for advice on the plans below. Which is best, which is looney, what am I missing?
PLAN A: But an extension gives me to October? That will require $5k monthly which will make my budget very tight. And some risk of not making it. IE if I lose a big client and alot of income.
PLAN B: Put into 401 K whatever I have in April (will be less than max) and just pay the extra tax. This is path of least resistance and easy but expensive.
PLAN C: Borrow from my emergency fund to cover the difference. Pay back the emergency fund as agresssively as in PLAN A. The budget is still tight but the risk of losing money to taxman is lower, in case I have to take a little longer to pay myself back. I don't like drawing down the fund, but I do have the fallback of taking a 401k loan if I need it. If I do this plan I will leave the amount in cash until I pay myself back.
PLAN D: I have an IRA that I am planning to roll over into the 401k. I could roll over, take the amount of the contribution out as a loan, and then redeposit it as a 2010 contrib. Paying back $2500 a month at 4.375% would take under 2 years and won't squeeze the budget as much as PLAN A or PLAN C. Cost is that I lose money as opportunity cost if the market goes up during those 2 yrs. I would also have to liquidate a bunch of funds that I hold in the IRA.
PLAN E: Rob a bank. There's a branch down the street with poor security. (Just kidding.)