Individual 401k with Vanguard

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jonce17
Posts: 37
Joined: Sun Sep 10, 2017 3:57 pm

Individual 401k with Vanguard

Post by jonce17 » Wed Dec 13, 2017 10:20 pm

So I'm an independent contractor and have some money transferred from my business account to the 401k each month. It says that it is Roth 401k eligible as well, but I've never taken advantage of that.

If I wanted to make a Roth 401k contribution, do I have to transfer it from my business account or personal?

Also, how does a Roth IRA differ from a Roth 401k?

JBTX
Posts: 4039
Joined: Wed Jul 26, 2017 12:46 pm

Re: Individual 401k with Vanguard

Post by JBTX » Wed Dec 13, 2017 10:26 pm

If you are sole proprietorship your business account is your personal account for tax purposes, as far as I can tell.

A Roth 401k is mostly similar to a Roth IRA. With a Roth 401k there are RMDs in retirement but you can easily get around that by rolling it over to a Roth IRA.

jonce17
Posts: 37
Joined: Sun Sep 10, 2017 3:57 pm

Re: Individual 401k with Vanguard

Post by jonce17 » Wed Dec 13, 2017 11:47 pm

So it would be wise to sock some money away if possible?

DSInvestor
Posts: 10882
Joined: Sat Oct 04, 2008 11:42 am

Re: Individual 401k with Vanguard

Post by DSInvestor » Thu Dec 14, 2017 2:19 am

Roth 401k contributions are employee salary deferral contributions just like Traditional 401k contributions. You make them the same way as your Traditional 401k contributions. The 18K limit for employee salary deferral contributions is shared between Roth 401k and Traditional 401k.

Roth IRA contributions have a separate 5.5K contribution limit.

If you're self employed and unlikely to receive a defined benefit pension, I would suggest maxing out Traditional 401k for 18K, maxing out employer profit share (~20% of schedule C net business income or 25% of S-Corp W-2 salary), then maxing Roth IRA for 5.5K. If income is too high to allow direct Roth IRA contribution, use backdoor into Roth IRA. Use the tax savings from the big Traditional 401k contributions to invest in taxable accounts. In the early years of retirement before you start social security benefits, you can live off the taxable accounts and do a series of Roth conversions for little or no tax.

Here's a fairmark page that compares Roth IRA with Designated Roth Account: http://fairmark.com/retirement/roth-acc ... -roth-ira/
Last edited by DSInvestor on Thu Dec 14, 2017 10:29 am, edited 1 time in total.
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jonce17
Posts: 37
Joined: Sun Sep 10, 2017 3:57 pm

Re: Individual 401k with Vanguard

Post by jonce17 » Thu Dec 14, 2017 9:22 am

I see. thanks

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