401k options for small company

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katzmandu
Posts: 139
Joined: Tue Nov 26, 2013 8:39 am

401k options for small company

Post by katzmandu » Thu Oct 19, 2017 7:45 am

While having a conversation with a friend last night who is an employee of a 2 man law firm, I was struck by the fact that he mentioned he's only saving in an IRA as opposed to any sort of 401k (company, self directed, etc). Due to the contributory limits of an IRA, he's likely going to find himself working until he's dead before he'd have enough squared away in his retirement account to seriously consider actually backing away from work.

Can someone please advise what 401k (or other) option might be his best choice for being able to save much closed to the 53k limit? I'm not sure if the options would be contingent of the type of business agreement (partnership, etc) or of there are any considerations in that regard, so, any information would be useful to pass along to him.

TIA.

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Smorgasbord
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Re: 401k options for small company

Post by Smorgasbord » Thu Oct 19, 2017 9:10 am

katzmandu wrote:
Thu Oct 19, 2017 7:45 am
While having a conversation with a friend last night who is an employee of a 2 man law firm, I was struck by the fact that he mentioned he's only saving in an IRA as opposed to any sort of 401k (company, self directed, etc). Due to the contributory limits of an IRA, he's likely going to find himself working until he's dead before he'd have enough squared away in his retirement account to seriously consider actually backing away from work.
Is there a reason he can't save for retirement in a taxable account? I worked in a 3 man law firm for several years that did not provide a 401k, so I saved for retirement using tax-efficient investments in my taxable account while sticking the inefficient investments in a Roth IRA.

metrunt
Posts: 260
Joined: Thu Jul 16, 2015 9:36 am

Re: 401k options for small company

Post by metrunt » Thu Oct 19, 2017 10:03 am

Yeah, that sentence is an odd sentiment. Your money doesn't have to be in a tax-advantaged retirement account to be used for retirement.

Rupert
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Re: 401k options for small company

Post by Rupert » Thu Oct 19, 2017 10:09 am

You say he's an "employee" of a 2-man law firm. Is he one of the 2 lawyers? Also, is the 2-man law firm really a "firm," or is it two solo practitioners sharing space? Space (and sometimes staff) sharing happens a lot with lawyers. The answers to these questions might make a difference as to what his options are. A solo 401k could, for example, be an option for him and his spouse if he's one of the lawyers and the lawyers are just sharing space.

Spirit Rider
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Re: 401k options for small company

Post by Spirit Rider » Thu Oct 19, 2017 4:32 pm

A one-participant 401k can be used for any owner-only business. This can be a sole proprietorship, partnership or S-Corp.

KSActuary
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Joined: Fri Jan 13, 2012 10:53 pm

Re: 401k options for small company

Post by KSActuary » Thu Oct 19, 2017 9:54 pm

Lots of options for a 401k - EF, Vanguard are best.

katzmandu
Posts: 139
Joined: Tue Nov 26, 2013 8:39 am

Re: 401k options for small company

Post by katzmandu » Fri Oct 20, 2017 6:51 am

Rupert wrote:
Thu Oct 19, 2017 10:09 am
You say he's an "employee" of a 2-man law firm. Is he one of the 2 lawyers? Also, is the 2-man law firm really a "firm," or is it two solo practitioners sharing space? Space (and sometimes staff) sharing happens a lot with lawyers. The answers to these questions might make a difference as to what his options are. A solo 401k could, for example, be an option for him and his spouse if he's one of the lawyers and the lawyers are just sharing space.
Father son team where they are both lawyers and employees, not just separate and sharing space.

Rupert
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Joined: Fri Aug 17, 2012 12:01 pm

Re: 401k options for small company

Post by Rupert » Fri Oct 20, 2017 9:11 am

katzmandu wrote:
Fri Oct 20, 2017 6:51 am
Rupert wrote:
Thu Oct 19, 2017 10:09 am
You say he's an "employee" of a 2-man law firm. Is he one of the 2 lawyers? Also, is the 2-man law firm really a "firm," or is it two solo practitioners sharing space? Space (and sometimes staff) sharing happens a lot with lawyers. The answers to these questions might make a difference as to what his options are. A solo 401k could, for example, be an option for him and his spouse if he's one of the lawyers and the lawyers are just sharing space.
Father son team where they are both lawyers and employees, not just separate and sharing space.
If they have other employees, e.g., legal assistants, office manager, paralegals, runners, then SEP IRA and SIMPLE IRA are options. If they have more than 10 employees or so (which is very unlikely in a 2-lawyer firm), a small business 401k with an outfit such as Employee Fiduciary would be an option. If no employees, i.e., if the only two people working at the firm are the two lawyer-owners, a self-employed 401k would be my recommendation. (I bet they at least share a secretary/assistant, which would eliminate the self-employed 401k as an option for the firm).

ZWorkLess
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Joined: Thu May 04, 2017 8:13 pm

Re: 401k options for small company

Post by ZWorkLess » Fri Oct 20, 2017 11:21 am

We use a SIMPLE IRA and are very satisfied. It was much cheaper and simpler to set up and maintain than a 401k would have been for our dozen-or-so-staff small business.

Contribution limits are a bit lower than a 401k, but much higher than an individual IRA. (12,500 employee contribution max for under 50, 15,500 for 50 & up. Employer match up to 3% of salary will bump that up a good bit for the highly compensated employees/attorneys.)

Very low fees, very little hassle.

Set up was smooth and easy via Vanguard. They're lawyers, so they should be able to handle it.

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