Where to best set up 401k for Self Employed Contractor?

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Derivative
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Where to best set up 401k for Self Employed Contractor?

Post by Derivative » Thu Nov 30, 2017 12:57 pm

Where to best set up 401k for Self Employed Contractor?

I want to minimize my tax liability for 2017. I have ~100k self-employed 1099 contractor income. How much can I contribute to a 401k, what 401k should I set up, and where? Also, when is the deadline?

I have ~35k in a ROTH IRA at Vanguard right now in Vanguard Target Retirement 2055 Fund Investor Shares.

I want to maximize how much I save/invest and any capital gains/cash flow (while minimizing investment expenses, fees, etc.). Basically, I want to make the best decision financially investment/tax/savings-wise with this year's income.

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BolderBoy
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Re: Where to best set up 401k for Self Employed Contractor?

Post by BolderBoy » Thu Nov 30, 2017 2:00 pm

Derivative wrote:
Thu Nov 30, 2017 12:57 pm
I want to maximize how much I save/invest and any capital gains/cash flow (while minimizing investment expenses, fees, etc.). Basically, I want to make the best decision financially investment/tax/savings-wise with this year's income.
We'll need more info. For example, do you have a traditional IRA? A 401k with previous employer? What is your marginal tax bracket (fed and state)? Will you potentially reach an income point where you cannot contribute to a Roth IRA or make deductible contributions to a traditional IRA?

Without knowing more about you the two leading choices might be Fidelity and Vanguard for a solo 401k. Which to choose depends on some answers to the above questions as well as those that will be asked by others here.

Insofar as deadlines... To make a 401 contribution for 2017, the 401k account needs to be opened BEFORE January 1. Funding it can be delayed thereafter if necessary.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect

cadreamer2015
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Re: Where to best set up 401k for Self Employed Contractor?

Post by cadreamer2015 » Thu Nov 30, 2017 2:05 pm

For an individual 401k the employee contribution must be made before 12/31. The employer contribution can be made any time up to 4/15 of the following year, I believe.

I have set up my i401k at Vanguard and I’m happy with it. There are advantages and disadvantages of Fido vs Vanguard. You can search earlier threads on the subject for more detail.
De gustibus non est disputandum

Derivative
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Re: Where to best set up 401k for Self Employed Contractor?

Post by Derivative » Thu Nov 30, 2017 2:14 pm

BolderBoy wrote:
Thu Nov 30, 2017 2:00 pm
Derivative wrote:
Thu Nov 30, 2017 12:57 pm
I want to maximize how much I save/invest and any capital gains/cash flow (while minimizing investment expenses, fees, etc.). Basically, I want to make the best decision financially investment/tax/savings-wise with this year's income.
We'll need more info. For example, do you have a traditional IRA? A 401k with previous employer? What is your marginal tax bracket (fed and state)? Will you potentially reach an income point where you cannot contribute to a Roth IRA or make deductible contributions to a traditional IRA?

Without knowing more about you the two leading choices might be Fidelity and Vanguard for a solo 401k. Which to choose depends on some answers to the above questions as well as those that will be asked by others here.

Insofar as deadlines... To make a 401 contribution for 2017, the 401k account needs to be opened BEFORE January 1. Funding it can be delayed thereafter if necessary.
I don't have anything else other than what I stated in the original post (~35k in a Roth IRA at Vanguard). I currently don't have any 401k accounts. My income is basically just $100k-$110k in 1099 self-employed income. Where can I find the benefits and disadvantages of 401k. Also, can I just fund my 401k but not invest it in anything? I am wondering the same with a Roth IRA. Does the money in the accounts have to be in investments or can they just sit in the accounts as cash?

avalpert
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Re: Where to best set up 401k for Self Employed Contractor?

Post by avalpert » Thu Nov 30, 2017 2:14 pm

cadreamer2015 wrote:
Thu Nov 30, 2017 2:05 pm
For an individual 401k the employee contribution must be made before 12/31.
That isn't true. If you are taxed as an S-Corp and paid a W2 it does have to be withheld from your paychecks within 2017 - but if you are a sole proprietor you have to elect the contribution in 2017 and then have until you tax filing deadline (including extensions so not 4/15 if you file for an extension even if you file your 1040 by then) to make the contributions just as with employer contributions

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welderwannabe
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Re: Where to best set up 401k for Self Employed Contractor?

Post by welderwannabe » Thu Nov 30, 2017 2:17 pm

cadreamer2015 wrote:
Thu Nov 30, 2017 2:05 pm
For an individual 401k the employee contribution must be made before 12/31. The employer contribution can be made any time up to 4/15 of the following year, I believe.

I have set up my i401k at Vanguard and I’m happy with it. There are advantages and disadvantages of Fido vs Vanguard. You can search earlier threads on the subject for more detail.
With a solo 401k I believe both the emoloyee and employer side contribution can be made up to 4/15. The employee must just 'elect' what they intend to contribute by years end, not actually fund it.

This is my recollection anyways. There are people that know more about this than myself on the forum.


I used Fidelity for mine. I started out with Vanguard but found their restrictions on admiral shares, individual bonds, and CDs too much for me in their solo 401k plan. Fidelity's is far more flexible for my needs.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

DSInvestor
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Re: Where to best set up 401k for Self Employed Contractor?

Post by DSInvestor » Thu Nov 30, 2017 2:22 pm

Solo 401k is probably the best way to 401k for a self employed person earning 1099 contractor income. Note that the Solo 401k contribution is based on your net business income not on your gross revenue. Assuming 100K net business income, that would allow around 36K of Solo 401k contributions where 18K is employee salary deferral and around 18K in employer profit share.

Make sure you establish your Solo 401k plan before 12/31/2017. Miss this deadline and you will not be allowed to contribute to Solo 401k for tax year 2017.

Fidelity has a good Self Employed 401k plan that offers low cost index funds that are lower cost than what you can get in the Vanguard Individual 401k plan.

Derivative
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Re: Where to best set up 401k for Self Employed Contractor?

Post by Derivative » Thu Nov 30, 2017 2:28 pm

DSInvestor wrote:
Thu Nov 30, 2017 2:22 pm
Solo 401k is probably the best way to 401k for a self employed person earning 1099 contractor income. Note that the Solo 401k contribution is based on your net business income not on your gross revenue. Assuming 100K net business income, that would allow around 36K of Solo 401k contributions where 18K is employee salary deferral and around 18K in employer profit share.

Make sure you establish your Solo 401k plan before 12/31/2017. Miss this deadline and you will not be allowed to contribute to Solo 401k for tax year 2017.

Fidelity has a good Self Employed 401k plan that offers low cost index funds that are lower cost than what you can get in the Vanguard Individual 401k plan.

Thank you so much. Can you leave money in either a 401k or Roth IRA or any retirement account and not actually buy any shares with the money (i.e. just keep it in cash)?

DSInvestor
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Re: Where to best set up 401k for Self Employed Contractor?

Post by DSInvestor » Thu Nov 30, 2017 2:45 pm

Derivative wrote:
Thu Nov 30, 2017 2:28 pm
DSInvestor wrote:
Thu Nov 30, 2017 2:22 pm
Solo 401k is probably the best way to 401k for a self employed person earning 1099 contractor income. Note that the Solo 401k contribution is based on your net business income not on your gross revenue. Assuming 100K net business income, that would allow around 36K of Solo 401k contributions where 18K is employee salary deferral and around 18K in employer profit share.

Make sure you establish your Solo 401k plan before 12/31/2017. Miss this deadline and you will not be allowed to contribute to Solo 401k for tax year 2017.

Fidelity has a good Self Employed 401k plan that offers low cost index funds that are lower cost than what you can get in the Vanguard Individual 401k plan.

Thank you so much. Can you leave money in either a 401k or Roth IRA or any retirement account and not actually buy any shares with the money (i.e. just keep it in cash)?
Sure you can make the contribution to the Solo 401k which will give you the tax benefit. The contributions will show up in the cash account inside the Solo 401k. Once in the account, you can choose to invest in things or not invest at all. There is no rush to invest the money if you're still putting an investment plan together.

Give Fidelity's small business group a call at 800-544-5373 and ask them lots of questions. I think you'll be pleased with their service and knowledge.
Fidelity Self Employed 401(k): https://www.fidelity.com/retirement-ira ... k/overview

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