Is solo 401k the right move?

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Topic Author
Partyof5
Posts: 2
Joined: Thu Oct 22, 2020 10:15 am

Is solo 401k the right move?

Post by Partyof5 »

Hello, Bogleheads. First-time poster but I’ve lurked around for a while-have learned a lot and gotten some good guidance in the areas of life insurance, personal investing, and college savings. I have zero background or formal training in anything financial but have in recent years really tried my best to learn to be able to make informed decisions.

I’ve just started working a bit again after a hiatus of staying home with the kids for 5 years. My work is as an independent contractor in healthcare, so no employer-based retirement plan available. I have 2 previous employer-based plans (TIAACREF and Fidelity), plus a small pension that are just sitting. I opened a traditional IRA a few years ago, but have used it only as a means for backdoor Roth funding. The backdoor Roth is the reason I’ve not done anything with the other retirement accounts.

Neither my husband or myself have been self-employed before, so this is new territory for us. I don’t want to interfere with my ability to continue with backdoor Roth contributions, even though I’m not sure to what degree I will use it since I will be able to directly tax deduct contributions again. We are also unsure as to how much we will actually allot to a new retirement account for me, as we feel we are doing well in this area (for years have aggressively contributed to available employer plans, plus backdoor Roth, and a brokerage account). The biggie reason for me to work again is because we have college looming and know we will face a shortfall with our 529s. I’d like to roll my funds from previous employment into an account I can manage on my own.

Is a solo-401k the right way to go in this situation? Can I rollover the previous employer-based funds without interfering with future Roth contributions? If this is the way to go, are there any suggestions as to which companies to look at?

Thanks in advance,

Partyof5
terran
Posts: 1884
Joined: Sat Jan 10, 2015 10:50 pm

Re: Is solo 401k the right move?

Post by terran »

As long as you don't plan to hire any employees, then yes, a solo 401(k) is almost certainly the right decision. It will have the highest contribution limit at the lowest income, won't interfere with your backdoor Roth itself, and if rolled over to the right place will accept income Rollovers from IRA or former workplace plans. Some providers (vanguard) don't allow rollovers from IRAs, and I'm not sure if this also applies to workplace plans. I would (did) open one at etrade which allows rollovers into the plan, allows Roth contributions, and offers a number of Vanguard mutual funds commission free. Fidelity (which I used to have) would also be a good option with rollovers allowed and good investment options, but no Roth option.
Topic Author
Partyof5
Posts: 2
Joined: Thu Oct 22, 2020 10:15 am

Re: Is solo 401k the right move?

Post by Partyof5 »

Thanks, terran. I appreciate your response. Not likely that I’d hire any employees any time soon, if ever. I will look into etrade and Fidelity. I definitely want to rollover these previous workplace plans. Since I already have a Roth (Vanguard) I don’t think I’d necessarily need/want another Roth option?

Partyof5
JimmyJammy
Posts: 252
Joined: Sat Oct 26, 2013 1:08 pm

Re: Is solo 401k the right move?

Post by JimmyJammy »

I love my solo 401(k). It can massively reduce your taxable income. My favorite brokerage for it is TD Ameritrade. I love how they let me invest in basically anything.
HomeStretch
Posts: 5402
Joined: Thu Dec 27, 2018 3:06 pm

Re: Is solo 401k the right move?

Post by HomeStretch »

Partyof5 wrote: Thu Oct 22, 2020 10:49 am Is a solo-401k the right way to go in this situation?
If you are eligible, a Solo 401k is a good option for a self-employed retirement plan.
Can I rollover the previous employer-based funds without interfering with future Roth contributions?
You can rollover your previous employer 401k accounts to a Solo 401k if the provider’s Solo 401k plan allows it. Vanguard does not. A rollover to a Solo 401k will not preclude you from doing a backdoor Roth.
We are also unsure as to how much we will actually allot to a new retirement account for me, as we feel we are doing well in this area (for years have aggressively contributed to available employer plans, plus backdoor Roth, and a brokerage account).
Consider a Solo 401k from a provider that allows Roth deferrals. Fidelity does not. Contribute the maximum amount you are able to the Solo 401k. You can always make a portion of your employee deferral as a Roth deferral funded from your Taxable account (assuming no significant capital gains). Your Roth account will grow tax free so it should be more tax efficient than your Taxable account.
If this is the way to go, are there any suggestions as to which companies to look at?
Vanguard and Fidelity are not options if you want to do rollovers in and make Roth employee deferrals. Consider e-Trade or check to see if Schwab allows rollovers in and Roth deferrals.
Katietsu
Posts: 4331
Joined: Sun Sep 22, 2013 1:48 am

Re: Is solo 401k the right move?

Post by Katietsu »

When I opened a solo 401k, ETrade had the most features. Actually, I think TD Ameritrade may have similar offerings but their website was less transparent. If you have a different favorite brokerage, check to see what they offer.

If your retirement savings is behind your spouse’s, consider increasing your contributions even if it means decreasing your spouse’s.

I think prioritizing deductible 401k contributions first is reasonable given that you must have a higher income right now. Personally, I use a combination of the deductible 401k and the Roth IRA to have some tax diversification.
BogleFan510
Posts: 328
Joined: Tue Aug 04, 2020 2:13 pm

Re: Is solo 401k the right move?

Post by BogleFan510 »

Schwab has a great solo 401k and excellent service helping set it up, great investment options. Zero regrets.
hameshatumkochaha
Posts: 45
Joined: Tue Feb 22, 2011 7:33 pm

Re: Is solo 401k the right move?

Post by hameshatumkochaha »

I agree with Terran.
1. You might want to keep track of income each month and continue contributing accordingly each time. Makes a great difference over a long term... I wish I did..
2. Don't forget trade offers Roth solo 401k too...
3. You should not miss out on doing employer contribution per IRS formula... Must go to traditional solo 401lk ONLY!.
4. Don't forget additional Roth else trad IRA too.
5. Mega backdoor roth after tax is a possibility. If anyone has the procedure to follow to get it setup with eTrade / Fidelity or similar good brokerage firm with little/no setup / maintenance fees, please PM me. Here is a relevant thread... viewtopic.php?f=1&t=252951&p=5352511#p5352511
Hope this helps you Op.
Thanks in advance to those who help me with #5...
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