PLEASE HELP: Setting up new individual 401k

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
BabyBogle
Posts: 5
Joined: Mon Feb 20, 2017 2:46 pm

PLEASE HELP: Setting up new individual 401k

Post by BabyBogle » Fri Dec 15, 2017 1:59 am

My spouse and I would each like to set up a new individual 401k and fund it before year end. We are both self-employed. Our accountant says we can contribute a max of $54K each from our Schedule C income.

We are concerned that the stock market may be topping out, so we’re considering three options:
1. Set up the 401(k) and just let the money sit there in cash;
2. Buy assets not correlated with the stock market; or
3. Set up a "self directed" 401(k) and put the money into alternative assets.

Neither of us has a 401k, and we don’t know a lot about them. We think we will set it up with Vanguard.

We have a net worth of 25x of our annual spending. It’s in real estate and alternative investments.

Thank you for all of your advice!
Last edited by BabyBogle on Fri Dec 15, 2017 7:20 pm, edited 1 time in total.

BabyBogle
Posts: 5
Joined: Mon Feb 20, 2017 2:46 pm

Re: Setting up new individual 401k

Post by BabyBogle » Fri Dec 15, 2017 7:19 pm

Bummed that I didn't get a reply. Is there some trick to getting responses?

BabyBogle
Posts: 5
Joined: Mon Feb 20, 2017 2:46 pm

Re: Setting up new individual 401k

Post by BabyBogle » Fri Dec 15, 2017 7:20 pm

Would love some advice from all of the experienced folks here.

retiredjg
Posts: 32703
Joined: Thu Jan 10, 2008 12:56 pm

Re: PLEASE HELP: Setting up new individual 401k

Post by retiredjg » Fri Dec 15, 2017 7:28 pm

I think most people here would suggest that you DO set up the individual 401k plans - at Vanguard or Fidelity. Or maybe Schwab. Vanguard does not allow you to roll in money from IRA. Fidelity does and this is considered a benefit by many. I don't know what Schwab does.

I think most people here would suggest that you invest money as you have it available. Do not worry about the high market - the market is frequently at or near all time highs when it is not in a crash. To get past your fear, you simply need to learn more about investing. To combat your fear of investing, use a conservative stock to bond ratio till you get your feet on the ground.

I think few people here would suggest that you invest in "alternatives" in your 401k at all.

User avatar
fortfun
Posts: 737
Joined: Tue Apr 19, 2016 7:31 pm

Re: PLEASE HELP: Setting up new individual 401k

Post by fortfun » Fri Dec 15, 2017 7:35 pm

How old are you and when do you plan to retire/need the money?

A rule of thumb is:
1/3 Total index stocks (US)
1/3 Total index stocks (international)
1/3 Total index bonds

Rebalance each year. If you need access to the money sooner you'll want a high interest savings account, CDs, etc.

Vanguard has some of the lowest fees, so that's a good choice. Also, you might be better off selecting a target date fund. Through Vanguard, they have low fees and are a no-brainer.

User avatar
NoRoboGuy
Posts: 731
Joined: Fri Apr 01, 2011 11:07 pm
Location: Just west of Austin TX

Re: PLEASE HELP: Setting up new individual 401k

Post by NoRoboGuy » Fri Dec 15, 2017 7:37 pm

It is hard to help without more information about your knowledge of investing. Have you read the wiki, starting with...
https://www.bogleheads.org/wiki/Getting_started

..and then the best way to ask questions on this thread...
viewtopic.php?f=1&t=6212
There is no free lunch.

bada bing
Posts: 53
Joined: Fri Sep 09, 2016 10:45 am

Re: PLEASE HELP: Setting up new individual 401k

Post by bada bing » Fri Dec 15, 2017 8:12 pm

I set up a solo 401K at Schwab 3 years ago. After doing my study, I rejected
Vanguard as a custodian for my solo 401K. The biggest reason is that Vanguard
doesn't allow rolling in outside IRA money, but TBH Vanguard CSR's don't give me
the greatest confidence when it comes to anything more complex than simple
individual brokerage or IRA accounts. I love and use vanguard ETF's for most of
my allocation but I use other custodians to hold them. That goes double for a
solo 401K account. Setting up a solo 401K isn't a daunting task, but it definitely is
more involved than opening an IRA or brokerage account. There are reporting
requirements on solo 401Ks that kick in when the balance exceeds $250K as well.

Changing investment allocations based on perceived market conditions is the
definition of market timing. I don't do that, I learned my lesson years ago. It
may work out for you. It didn't for me.

CFM300
Posts: 1331
Joined: Sat Oct 27, 2007 5:13 am

Re: PLEASE HELP: Setting up new individual 401k

Post by CFM300 » Fri Dec 15, 2017 8:49 pm

How much Schedule C income do you have?

If you're under 50, you can contribute $18,000 to a 401(k). When you're self-employed, you can also make contributions to your own 401(k) as an employer. But that's limited to approximately 20% of your net self-employment income.

So, to hit the $54,000 limit that your accountant mentioned, you'd need to have net SE income of approximately $180,000. ($18k in employee contributions + $36k in employER contributions = $54k)

That's considering you and your wife as individuals, each earning money from separate ventures. If you're working in the same business, things are a bit different.

As to how you might invest the money you put in your 401(k), we'd need to know a lot more about your current financial situation. See the previously linked post about how to ask questions.

If I remember correctly, your 401(k) does have to be established before the end of the year, but I think you have up 'til April 15th of next year to make contributions. Perhaps you should set one up and then study up a bit more. In that regard, I recommend Mike Piper's book:

https://www.amazon.com/Independent-Cont ... bc?ie=UTF8

Here's a relevant excerpt from his site:

https://obliviousinvestor.com/sep-vs-si ... solo-401k/

billfromct
Posts: 643
Joined: Tue Dec 03, 2013 9:05 am

Re: PLEASE HELP: Setting up new individual 401k

Post by billfromct » Fri Dec 15, 2017 11:07 pm

To open your Individual 401k with Vanguard will take a few days because, if my memory serves me correctly, you have to sign some paperwork & get it back to them.

My daughter opened up a Vanguard I 401k 3 or 4 years ago. Vanguard sent her the paperwork via E-mail, then walked her through the process; then she had to send the signed documents back to Vanguard.

You have until tax day (April 2018) to fund your 2017 contribution. You can put your 2017 contribution in a money market fund then dollar cost average into your asset allocation throughout the year if you are uncomfortable with putting your contribution into the stock market all at once.

You need to call Vanguard on Monday to get the ball rolling being so close to the holidays. As you mentioned, you need to open it by year end.

bill

User avatar
welderwannabe
Posts: 614
Joined: Fri Jun 16, 2017 8:32 am

Re: PLEASE HELP: Setting up new individual 401k

Post by welderwannabe » Sat Dec 16, 2017 8:32 am

My spouse and I moved our Solo 401k's from Vanguard to Fidelity. In addition to allowing incoming IRA rollovers, they have more investment options than vanguard offers including individual bonds and CDs. Vanguard also does not allow admiral funds in their solo 401k, but Fidelity allows their premium funds (similar to admiral funds) in their solo 401k.

As for investment advice, the number of posts on BH of people coming on stating "Gee, I was really stupid, and 5 years ago I stayed out of the market because I thought it was topped out and now I have missed out on all this return because my money was in cash" is staggering.

Don't stay away from stocks. It appears you already have a large exposure to alternative investments/real estate in your comment about your net worth, so there is no reason not to go stock heavy in your 401k.

Good luck.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

Lafder
Posts: 3720
Joined: Sat Aug 03, 2013 7:56 pm
Location: East of the Rio Grande

Re: PLEASE HELP: Setting up new individual 401k

Post by Lafder » Sat Dec 16, 2017 10:35 am

Set up the 401k accounts asap. You must have them opened before the end of this year. You have until your tax filing deadline to fund them. But you will miss 2017 if not set up in the next two weeks.

Fidelity has lower cost funds than Vanguard for their solo 401k's since VG does not have Admiral shares for the solo401k accounts. Also, Fidelity allows you to roll in other retirement accounts and VG does not, last I checked. I have a friend who uses Schwab for her solo401k, I have no experience.

It doesn't matter if you start with cash or mutual funds. The first order of business is making the accounts.

Then it is a good idea to look at your overall portfolio so you can figure out what to hold in your solo 401k in relation to everything else you hold.

I would not keep it as cash. I would invest with an Asset Allocation that matches your risk tolerance. I would not do a self directed solo401k with alternative investments. I am not even sure what that would allow, and why it would be an advantage?

Make the accounts, then decide what to put there :)

lafder

User avatar
tadamsmar
Posts: 7675
Joined: Mon May 07, 2007 12:33 pm

Re: PLEASE HELP: Setting up new individual 401k

Post by tadamsmar » Sat Dec 16, 2017 11:09 am

If I were you, I might set the individual 401K's at a local brick and mortar custodian, like your bank. But you may want to make sure you can roll it over to another custodian. Or, at least, phone Vanguard or other internet custodian to see if it is realistic to get it done this year.

I set one up for my wife. Not sure it would get done before the end of the year by Vanguard. I had to submit a number of paper forms.

You need to set it up before the end of the year. You can fund early next year, I think 4/15 or tax day is the deadline for funding.

livesoft
Posts: 60977
Joined: Thu Mar 01, 2007 8:00 pm

Re: PLEASE HELP: Setting up new individual 401k

Post by livesoft » Sat Dec 16, 2017 11:14 am

After reading about individual 401(k)s on bogleheads.org, I opened my at TDAmeritrade. They have all the features I needed with no hassles and a local office where I can drop off my 401(k) contribution when I go out to lunch or go to the library. I rolled my old employer 401(k) into my solo 401(k).

It took about 5 minutes to set it up while sitting in the office ... after taking about a week to have time to read the forms and understand them.

I just invest in regular ol' investments like Total US Stock Market, Total US Bond Market, etc. I don't see any need for "alternatives" whatever that means. You stated you already had alternatives, so why not diversify?
Wiki This signature message sponsored by sscritic: Learn to fish.

TIAX
Posts: 1032
Joined: Sat Jan 11, 2014 12:19 pm

Re: PLEASE HELP: Setting up new individual 401k

Post by TIAX » Sat Dec 16, 2017 11:23 am

livesoft wrote:
Sat Dec 16, 2017 11:14 am
I rolled my old employer 401(k) into my solo 401(k).
Consider that solo 401(k)s are not protected by ERISA and some states don't provide complete protection from creditors and bankruptcies to them.

Post Reply