Self-employee investments

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ruby123
Posts: 3
Joined: Thu Oct 04, 2018 2:48 pm

Self-employee investments

Post by ruby123 » Thu Oct 04, 2018 2:59 pm

Hi everyone,

We are very confused on where to begin with investments. I invest in 401k plan from my employer, my employer matches first 3% and I am investing 12% toward that which has 4% split in Roth but my husband is self-employed and we have never invested anything for him. We are not even sure what's the best plan to invest for his retirement. There are so many options and it doesn't make it any easy to make those decisions. His annual salary/profit from the business is around $250k but we really need to invest in retirements and he is in his early 30's so we might need to catch up on his retirements.

Any help?

Thank you
Ruby

pkcrafter
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Re: Self-employee investments

Post by pkcrafter » Thu Oct 04, 2018 7:19 pm

Here is some information on small business options from Schwab. Vanguard also has information on these plans.

https://www.schwab.com/public/schwab/in ... retirement


Paul
When times are good, investors tend to forget about risk and focus on opportunity. When times are bad, investors tend to forget about opportunity and focus on risk.

terran
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Re: Self-employee investments

Post by terran » Thu Oct 04, 2018 8:00 pm

Does your husband have any employees, and if not does he ever plan to have any employees?

ExitStageLeft
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Re: Self-employee investments

Post by ExitStageLeft » Fri Oct 05, 2018 7:36 am

Welcome to the forum! There are many options available for your husband to save in a tax-deferred retirement plan.
https://www.irs.gov/retirement-plans/he ... ement-plan

If your husband has no employees, a solo 401k will likely be the best way to save as much as possible each year. As a qualified retirement plan, your husband can put in up to $18,500 as an elective employee contribution. Additionally he can contribute as the employer and put in up to $36,500 annually.

On top of that, he may be able to put $5,500 each year into a Roth IRA using the backdoor Roth method. Additional retirement saving can be done in a taxable account. It's a good idea to save at least 15% of your income for retirement, and given your husband's late start it's better to save even more. Two good articles to get thinking about a comprehensive retirement savings plan are in the wiki pages on investing priority and tax efficiency.

grokzilla
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Re: Self-employee investments

Post by grokzilla » Fri Oct 05, 2018 12:48 pm

Opening a SEP-IRA or Solo 401k is probably his best bet.

At "lower" self-employed income levels the Solo 401k is the clear winner as it allows the large employee contribution -- even if he only made $20,000 per year he'd still be able to sock away that $18,500 into his retirement and then a hundred more as the employer. The SEP in that scenario would only ever be able to put away about 20% of that $20,000. However, the two plans equalize at higher self-employed income levels -- around $230k. So, in his situation, both the SEP and Solo 401k would be a good options.

One potential problem with the SEP-IRA as Exit mentioned is the inability to effectively take advantage of the backdoor ROTH IRA. It's not a major issue, but its notable and something to be aware of if you're interested in the backdoor ROTH.

Only real minor issue with Solo 401k is that it does require official plan set up, possible admin costs and additional tax forms. SEP-IRAs on the other hand are exceptionally easy to set up and manage. Again, pretty minor but something to be aware of.

krow36
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Location: WA

Re: Self-employee investments

Post by krow36 » Fri Oct 05, 2018 1:15 pm

terran wrote:
Thu Oct 04, 2018 8:00 pm
Does your husband have any employees, and if not does he ever plan to have any employees?
This is a critical question. If he has employees, the solo 401k is not possible, and a SEP IRA is not likely advantageous. That probably leaves a SIMPLE IRA plan. If he does not have any employees, a solo (individual) 401k plan is probably best because it allows a backdoor Roth IRA, which SEP IRA and SIMPLE IRA plans interfere with.

ruby123
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Joined: Thu Oct 04, 2018 2:48 pm

Re: Self-employee investments

Post by ruby123 » Tue Oct 23, 2018 12:37 pm

He does have few part time employees working for him so 401k is not a option. Is there any company offer plan to manage your retirements and how much fees usually do they charge.

ruby123
Posts: 3
Joined: Thu Oct 04, 2018 2:48 pm

Re: Self-employee investments

Post by ruby123 » Tue Oct 23, 2018 12:51 pm

Is there any advisors company's that can help you get started and manage you retirements. I was looking at vanguard but seems like they will only manage if you are investing $50k

nolesrule
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Joined: Thu Feb 26, 2015 10:59 am

Re: Self-employee investments

Post by nolesrule » Tue Oct 23, 2018 1:31 pm

ruby123 wrote:
Tue Oct 23, 2018 12:37 pm
He does have few part time employees working for him so 401k is not a option. Is there any company offer plan to manage your retirements and how much fees usually do they charge.
How "part-time" are they? As in how many hours per year? Some of the Solo 401k plans have eligibility restriction options.

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ruralavalon
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Re: Self-employee investments

Post by ruralavalon » Tue Oct 23, 2018 2:52 pm

ruby123 wrote:
Thu Oct 04, 2018 2:59 pm
Hi everyone,

We are very confused on where to begin with investments. I invest in 401k plan from my employer, my employer matches first 3% and I am investing 12% toward that which has 4% split in Roth but my husband is self-employed and we have never invested anything for him. We are not even sure what's the best plan to invest for his retirement. There are so many options and it doesn't make it any easy to make those decisions. His annual salary/profit from the business is around $250k but we really need to invest in retirements and he is in his early 30's so we might need to catch up on his retirements.

Any help?

Thank you
Ruby
Since your husband is self-employed he could consider using a SEP IRA, SIMPLE IRA, or individual (solo) 401k. Vanguard, small-business plans,"Compare plans". Both Fidelity and Schwab also offer the same types of plans. Fidelity "Retirement plans for small businesses ". Schwab, "Small business retirement plans".

The College Investor (12/11/2017), "Comparing The Most Popular Solo 401k Options".

The Bogleheads' wiki has articles on each type of plan. Boglehead's wiki, "SEP IRA". Boglehead's wiki, "SIMPLE IRA". Boglehead's wiki, "Solo 401k Plan".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

krow36
Posts: 1888
Joined: Fri Jan 30, 2015 6:05 pm
Location: WA

Re: Self-employee investments

Post by krow36 » Tue Oct 23, 2018 3:26 pm

Because he has employees, the SEP IRA requires him to contribute the same % of salary to his employees as he contributes to his own account. If he chooses to max his account using 25%, he will have to contribute the same to each of his employees. That is usually too expensive unless there's only a spouse employee.

He could start a small company 401k but that will probably cost several $1000 to set up and perhaps considerable annually. Instead he can set up a SIMPLE IRA on his own with a low-cost vendor such as Vanguard, Fidelity or Schwab. There’s no fee to set it up, and no annual fee to maintain it. If you hire an advisor to help you set it up and choose the investments, it will cost your fees will probably be 10X more than if you set it up yourself and learn a bit on what mutual fund would be best. You can get lots of help on this forum.
Here’s the BH Wiki on SIMPLE IRAs: https://www.bogleheads.org/wiki/SIMPLE_IRA
Here’s the IRS FAQ on SIMPLE IRAs: https://www.irs.gov/retirement-plans/re ... -ira-plans

As the employer, he can contribute 3% of his self-employment profit minus half of his self-employment tax. In addition he can contribute 12.5k as an employee. If his self-employment profit is about 250k/yr, the 2 contributions could add up to about 20k per year. This could be set up this year and the contributions made before April 15, 2019 after his 2018 profit is determined. He would be required to match 3% of his employees’ income to their own SIMPLE IRA accounts if they choose to contribute 3%.

Spirit Rider
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Re: Self-employee investments

Post by Spirit Rider » Tue Oct 23, 2018 4:14 pm

nolesrule wrote:
Tue Oct 23, 2018 1:31 pm
ruby123 wrote:
Tue Oct 23, 2018 12:37 pm
He does have few part time employees working for him so 401k is not a option. Is there any company offer plan to manage your retirements and how much fees usually do they charge.
How "part-time" are they? As in how many hours per year? Some of the Solo 401k plans have eligibility restriction options
@nolesrule is correct. The one-participant 401k restriction is against eligible non-spouse employees. If the OP's employees are < age 21 or work < 1,000 hours/year. The IRS allows and the OP can adopt a one-participant 401k plan that allows such employee eligibility restrictions. Note: Vanguard does not allow such restrictions, even for your children.

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