Solo 401k

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Solo 401k

Postby Ace1 » Wed Dec 26, 2012 11:37 pm

I have 2 solo 401k questions ...
1) What is the maximum amount allowed for company contribution/match to a solo401k for 2012 ?
2) Does Vanguard permit in service withdrawals rolled out of a solo401k (at Vanguard) and
into a (rollover) IRA (in Vanguard brokerage service) ?

Thanks for your responses !
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Re: Solo 401k

Postby STC » Wed Dec 26, 2012 11:48 pm

Assuming you are self-employed...Max contribution would be $17,500 + (25% * total gross income) to a max of $49k
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Re: Solo 401k

Postby bearwolf » Thu Dec 27, 2012 12:07 am

STC wrote:Assuming you are self-employed...Max contribution would be $17,500 + (25% * total gross income) to a max of $49k

Unless you are over 50 then you can make a catchup contribution for a total of 52K (From memory).

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Re: Solo 401k

Postby JamesSFO » Thu Dec 27, 2012 12:16 am

STC wrote:Assuming you are self-employed...Max contribution would be $17,500 + (25% * total gross income) to a max of $49k


Max is $50K for 2012, see http://benefitsattorney.com/modules.php?name=415
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Re: Solo 401k

Postby PaddyMac » Thu Dec 27, 2012 1:08 am

Solo 401(k) plans @ Vanguard:
The maximum deferral limit (EE) for 2012 is $17,000. Individuals age 50 or older can make an extra $5,500 "catch-up" contribution for 2012, for total deferrals of $22,500.
The maximum combined EE and ER contributions cannot exceed $50,000 for 2012. (Catch-up contributions do not count toward this limit.)  So, for the participant age 50 or older who makes "catch up" contributions, the combined contribution limit for 2011 is $55,500.

The employER contributions are based on net profit of course. If you are a corp, it's 25%. If a sole proprietor, you need to do the worksheets as the math is not straightforward, and ends up @ 20%.
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Re: Solo 401k

Postby Calm Man » Thu Dec 27, 2012 12:46 pm

James SFO in a post below has provided useful info while mine was incorrect. So I deleted this.
Last edited by Calm Man on Thu Dec 27, 2012 3:53 pm, edited 1 time in total.
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Re: Solo 401k

Postby JamesSFO » Thu Dec 27, 2012 12:57 pm

Calm Man wrote:OP posed 2 questions and one remains unanswered about inservice withdrawals. I have on of these accounts and I don't think inservice withdrawals are allowed. But unless you are actually cashing them out, rolling a self employed 401K to a traditional IRA at Vanguard wouldn't really provide any benefit (unless there is some aspect which has not bee noted in your post).


The I401K plan used by Vanguard has the full adoption agreement posted in the PDF kit, you would need to read the ins and outs of Section 5 on distributions. The answer is it depends:

C. Distributions During Employment
1. In-Service Withdrawals—If this is a profit sharing plan, unless the Adoption Agreement provides otherwise, a Participant who is not otherwise eligible to receive a distribution of their Individual Account may elect to receive an in-service distribution of all or part of the Vested portion of their Individual Account attributable to Employer Contributions other than those described in Plan Sections 5.01(A)(2) and 5.01(C)(2)(b), subject to the requirements of Plan Section 5.10 and further subject to the following limits.
a. Participant for five or more years—An Employee who has been a Participant in the Plan for five or more years may withdraw up to the entire Vested portion of their Individual Account.
b. Participant for less than five years—Except as otherwise provided in the Adoption Agreement, an Employee who has been a Participant in the Plan for less than five years may withdraw only the amount which has been in their Individual Account attributable to Employer Contributions for at least two full Plan Years, measured from the date such contributions were allocated.


And potential benefits I can think of are:

1) Access to admiral shares
2) Remove need for form 5500EZ reporting by lowering the plan balance

That said, 401Ks often get better protection from creditors than IRAs so I'm not sure it is worth it...
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Re: Solo 401k

Postby Ace1 » Thu Dec 27, 2012 3:21 pm

Thanks again to all who have responded ... sincerely appreciate your thoughful and informative responses.

To answer a couple points ....
Yes I am self employed - have two unrelated S corps - no other employees,
and many years away from the over 50 catchup opportunity.

My thinking regarding the in service withdrawals is to take advantage of the brokerage service
and have access to certain funds outside of the Vanguard offerings.
A bonus is the opportunity to utilize admiral funds for those Vanguard funds I do / will hold.
It seems there will be a two year "holding" requirement if I interpret the last post correctly.
It also seems in reading back thru a couple of the links to previous threads on similar subjects
and if I have interpreted them correctly, there may be a limit of 100% of wage OR the 25% x profit max of $33k whichever is less. If true, one would have to have wages of at least $50k from a second company which had a profit of at least $200k for it to contribute an additional $50k (the 25% x profit) to a separate solo401k.
Do I have this correct ?
Thanks again !
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Re: Solo 401k

Postby STC » Thu Dec 27, 2012 4:24 pm

https://investor.vanguard.com/what-we-o ... idual-401k

Its all well spelled out at Vanguard. You could also CALL THEM. They tend to be very helpful, polite, and well informed.
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Re: Solo 401k

Postby JamesSFO » Thu Dec 27, 2012 8:50 pm

If you have two S corps the employer (ER) contribution for both would be separately tested based on revenues it can work out to be about 20% of revenues for self-employment income due to the rules for backing out SS, etc.

This earlier thread had more on that specific scenario of two employers and the IRS publications cites are this point: http://www.bogleheads.org/forum/viewtopic.php?f=1&t=105449#p1533127

Keep in mind that depending on your state once the money is in an IRA it may be treated less favorably for various liability purposes, e.g. lawsuits, bankruptcy, etc.

Otherwise the benefits are as you cite and I would call Vanguard for specific answers on how section 5 is interpreted. Also, you might want to investigate other providers, e.g. does Fidelity's individual 401K just allow a brokerage window avoiding the need for withdrawals?
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