Independent Contractor with Zero Investments - Where to Begin?

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Topic Author
Excelsior
Posts: 4
Joined: Fri Jan 11, 2019 11:32 pm

Independent Contractor with Zero Investments - Where to Begin?

Post by Excelsior » Fri Jan 18, 2019 3:05 pm

Hello. My situation:

Emergency funds: 3+ months
Debt: 0
Tax filing status: single
Tax rate: 0% on income, FICA only (occupation: independent contractor performing remote online work subject to both seasonal spikes and unpredictable demand)
State of residence: MA
Age: 34
Current total portfolio size: $0
Taxable accounts: $0
Non-taxable accounts: $0
Current available income to invest: $3,000 in a personal checking account; $10,000 projected over the course of 2019
Desired asset allocation: maximize returns subject to zero debt incurred and legal risk
Desired international allocation: same as desired asset allocation
Risk tolerance: very high
CPA: none, so I am willing to forgo some tax advantage for the benefit of simpler taxes

In short: I live with family – we have a fully paid off car that we share. Emergency funds as well as housing and food costs are covered by their budget (sufficiently high, steady, full time employment).

All of the income that I earn from my independent contracting work is to be invested firstly for my own retirement. If there is any leftover income, then we can consider alternative investment opportunities.

My current plan is:
2018: invest earnings net of FICA into a Roth IRA, because this account allows contributions up to April 15th of the following year

I choose this strategy based on the fact that my current tax bracket is 0%, and so there is no benefit of a traditional IRA (deductions), but there is a benefit of Roth (non-taxed growth). My main question is what do to for the calendar year 2019. I estimate that I will still be in the 0% tax bracket, so I assume that Roth-type plans will be better. However, what is the best order of investment between Roth IRA, solo/self-employed Roth 401(k), and, if applicable, SIMPLE/SEP type plans?

On brokerage houses: I am still deciding between Vanguard, Fidelity, and Schwab. I have no particular affinity towards any one of them, but reviews seem to indicate a slight edge for Fidelity given (1) Vanguard’s recent struggles with customer service and technical issues, and (2) Schwab’s being owned by shareholders. In this regard, Fidelity seems like a good balance between the two – better, more modern technical infrastructure and support tools than Vanguard, but family owned unlike Schwab. If there is any insight here, I would appreciate it.

Thanks!

Skiandswim
Posts: 119
Joined: Tue Dec 21, 2010 3:24 pm

Re: Independent Contractor with Zero Investments - Where to Begin?

Post by Skiandswim » Fri Jan 18, 2019 4:19 pm

For 2019 the Roth 401K contribution limits are $19,000 vs $6,000 for Roth IRA. I setup an Individual Roth 401K with Vanguard as an independent consultant. The process was simple and allowed me contribute more for long-term tax advantaged investments.

Topic Author
Excelsior
Posts: 4
Joined: Fri Jan 11, 2019 11:32 pm

Re: Independent Contractor with Zero Investments - Where to Begin?

Post by Excelsior » Fri Jan 18, 2019 7:53 pm

Thanks for the advice.

If I don't make enough to hit either contribution limit (for example, $3,000) or to have any income tax liability, is there any advantage to opening up a Roth 401(k) in addition to a Roth IRA, or does that step only make sense after I've hit my Roth IRA limit?

User avatar
Davinci
Posts: 202
Joined: Sun Oct 14, 2018 3:36 am

Re: Independent Contractor with Zero Investments - Where to Begin?

Post by Davinci » Fri Jan 18, 2019 8:14 pm

Independent Contractor with Zero Investments - Where to Begin?
Excelsior,

It is never too late, many folks in this forum started at a later age and became millionaires.

1) LBYM
2) Saved on all tax advantages accounts (401k, Roth IRAs, HSA, etc)
3) Taxable account with anything left, Vanguard, Fidelity or Schwab are all fine choices.

The sooner you get started the better in the path for FI.

Best of luck in your journey.
" Simplicity is the ultimate sophistication" Leonardo Da Vinci.

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