Roth Solo 401K

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Topic Author
Greengo
Posts: 6
Joined: Wed Mar 31, 2021 8:51 pm

Roth Solo 401K

Post by Greengo »

Hi Bogleheads!
My husband and I maxed out our Roth IRA which we have with Vanguard (100% Stocks).
We have two separate Roth IRA accounts with Vanguard.

My Roth IRA Current allocation with Vanguard:
VFIAX
Vanguard 500 Index Fund Admiral Shares
VSGAX
Vanguard Small-Cap Growth Index Fund Admiral Share.

Husband Roth IRA Current allocation with Vanguard:
VTSAX
Vanguard Total Stock Market Index Fund Admiral Shares
VMGRX
Vanguard Mid-Cap Growth Fund

We are now independent contractors - both 1099, so I just opened a "Roth Solo 401k" with ETrade for me. My husband will be opening a Roth Solo 401K account as well.

Can I get recommendations on asset allocation for my Solo 401K with Etrade? Considering the asset allocation we already have with Vanguard. What would be a good asset allocation for the Roth Solo 401K?

I am 44 years old and my husband is 43 years old.
We have high risk tolerance but would like to choose an asset allocation that compliments the RothIRA we already have. Open for suggestions.

Additional question:
After maxing out Roth IRA.. can I still max the Solo 401K account in the same year?

Thank you again!
aristotelian
Posts: 12277
Joined: Wed Jan 11, 2017 7:05 pm

Re: Roth Solo 401K

Post by aristotelian »

Just curious why you would be doing Roth. What is your AGI? What is your anticipated spending in retirement? Since you do not have 401k yet, it would appear you would be in the 0% income tax bracket in retirement for now. Since you already have some Roth funds, I would suggest doing pretax for a few years and then reassess. You will find you can save much faster pretax at approximately your marginal tax rate.

Yes, 401k limits are separate from IRA so you can do both. Here is an excellent calculator for Solo 401k: https://obliviousinvestor.com/solo-401k ... alculator/
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David Jay
Posts: 14586
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Roth Solo 401K

Post by David Jay »

The starting point for any portfolio should be Total Stock, that is the default, low regret stock choice. If you feel a need to add some "frills" around the edges, no problem. But Total Stock should be the foundation and - in my opinion - the solid majority of your domestic stock holdings.

The second issue is: How much US and how much international. Again, any international should start with a foundation of Total International.
Greengo wrote: Wed Sep 22, 2021 11:01 amAfter maxing out Roth IRA.. can I still max the Solo 401K account in the same year?
Yes. Roth is a personal account and 401K is an employer-sponsored account so they have separate limits.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Wayneb
Posts: 3
Joined: Sat Jul 18, 2015 12:13 pm

Re: Roth Solo 401K

Post by Wayneb »

I may be off target here, but you have no bond funds available to rebalance from should the stock funds decline. I ran into this when all my accounts were 100% stock funds. When the market declined, I had no cash or bond funds to take advantage of the lower stock prices of the decline. You may want to find an allocation that works for you, maybe 80/20 for stocks/ bonds ? Then rebalance whenever the allocation changes 5% or more. Add a bond fund to each of your accounts. Set up the 2 new accounts the same way with a 80/20 (or other) allocation.
Good luck.
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BolderBoy
Posts: 6753
Joined: Wed Apr 07, 2010 12:16 pm
Location: Colorado

Re: Roth Solo 401K

Post by BolderBoy »

Wayneb wrote: Wed Sep 22, 2021 12:43 pm I may be off target here, but you have no bond funds available to rebalance from should the stock funds decline. I ran into this when all my accounts were 100% stock funds. When the market declined, I had no cash or bond funds to take advantage of the lower stock prices of the decline. You may want to find an allocation that works for you, maybe 80/20 for stocks/ bonds ? Then rebalance whenever the allocation changes 5% or more. Add a bond fund to each of your accounts. Set up the 2 new accounts the same way with a 80/20 (or other) allocation.
+1. I agree wholeheartedly with this advice.
"Never underestimate one's capacity to overestimate one's abilities" - The Dunning-Kruger Effect
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retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: Roth Solo 401K

Post by retiredjg »

Greengo, you are picking funds without a plan. I suggest you take a step back and make at least the beginnings of a plan first. It does not have to be elaborate.

You need to decide what you want your stock to bond ratio to be for the portfolio. So far you are 100% stocks. I suggest you consider adding a bond allocation. This decision should be made based on your need for risk, your ability to take risk, and your willingness to take risk. You want to be able to live with this portfolio when the risk chickens come home to roost (good times and bad times).

So far you are 100% stocks. I suggest you consider at least a 20% allocation to bonds. That would be an aggressive portfolio based on your age.

Next decision is how much of your stocks do you want to be invested in foreign stocks. Recommendations range from 0% (where you are now) to about 50% (global market weight more or less). Do not plan to get into and out of foreign stocks as they are doing well or poorly. That is a sure way to lose money. Pick a number and live with it through the ups and downs.

The third decision is how much of your portfolio should be in Roth accounts vs tax-deferred accounts. So far, it seems you are wanting all Roth, but this is rarely a good decision.

I think you should look over the Getting Started links and videos in the Wiki (link above) and give these decisions some consideration. You would also do well to post your financial situation according to the format shown in the link at the bottom of this message. You will learn a lot just by doing that exercise.
exodusNH
Posts: 10344
Joined: Wed Jan 06, 2021 7:21 pm

Re: Roth Solo 401K

Post by exodusNH »

Wayneb wrote: Wed Sep 22, 2021 12:43 pm I may be off target here, but you have no bond funds available to rebalance from should the stock funds decline. I ran into this when all my accounts were 100% stock funds. When the market declined, I had no cash or bond funds to take advantage of the lower stock prices of the decline. You may want to find an allocation that works for you, maybe 80/20 for stocks/ bonds ? Then rebalance whenever the allocation changes 5% or more. Add a bond fund to each of your accounts. Set up the 2 new accounts the same way with a 80/20 (or other) allocation.
Good luck.
I don't do this myself, but 100% stocks have a higher expected return. If you maintained bonds, you'd have lower volatility, but you'd sacrifice growth during those years. Yes, you could "buy on sale", but you would have missed out on all the gains when the stocks were doing well. (The same argument about against "buying the dip". If the market was up YTD 30% and you sat on cash until it dropped 10%, you'd still be buying at a higher value than it was earlier in the year.)

Even Bogle recognized that adding the 10% bond allocation to their distant retirement funds would result in a slightly lower return, but included them to dampen volatility. (I believe I heard this from Paul Merriman recounting a conversation he had had with him.)

With that said, I've always been 80/20 since I first started investing in 1998ish. There was 0 thought behind it. My advisor at the time set it up like that. I have found over the years that I never feel the need to do anything when the market drops. By luck, that was my SWAN number.
Topic Author
Greengo
Posts: 6
Joined: Wed Mar 31, 2021 8:51 pm

Re: Roth Solo 401K

Post by Greengo »

Thanks everyone for the input. I will be looking at pretax option for the Solo 401K and also changing from 100% stocks to 80/20. Thank you again!
sohcahtoa
Posts: 64
Joined: Mon Apr 13, 2020 1:40 am

Re: Roth Solo 401K

Post by sohcahtoa »

You may get some great ideas by giving a complete view of your financial picture. Here is the format for Asking Portfolio Questions: viewtopic.php?t=6212

For example, the 199A deduction may push the balance towards Roth 401k contributions. Depending on several factors, you may find it benefitial to contribute to a Traditional IRA and a Roth Solo401k. Here's more about how Roth 401k contributions reduce your 199A deduction: https://www.kitces.com/blog/199a-qbi-de ... ions-roth/
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