Solo 401k

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Btwood21
Posts: 2
Joined: Thu Aug 10, 2017 10:01 pm

Solo 401k

Post by Btwood21 » Fri Aug 11, 2017 12:29 am

Hello all,
As a quick introduction I am a 1099 contract worker making about $90k annually. I currently have a roth IRA, but would like to invest more than that for retirement. From my research it sounds like a solo 401k would be a good investment strategy to not only reduce my current taxable income, but also contribute more than $5500 annually into an account.

My questions are these:

Can I have a roth ira and a solo 401k and still contribute the max allowable into both?

Although I am self employed, I don't technically have a registered business. The checks I receive are paid to my name. Do I still qualify for a solo 401k without my own business even though I am self employed?

Thank you for taking the time to read this

robbyt
Posts: 1
Joined: Fri Aug 11, 2017 7:44 am

Re: Solo 401k

Post by robbyt » Fri Aug 11, 2017 8:17 am

- You can be a sole proprietor without any registration (implies schedule C when filing income tax)
- You can have a solo-401K and IRA (subject to the usual IRA contribution constraints and income phase-outs)
- Solo-401Ks allow contributions up to around $50K per year, depending on your income

My wife is a real estate agent (who is treated as a non-employee). She usually puts all of her income into her solo-401K to defer it since we live on my income. BTW, you can wait up until April 15th to make your contribution so you know exactly what your Sched C income is to determine your max contribution. You still do need to make your social security payments, though, so those are not deferred.

You can open your solo-401K at most any brokerage. Shop for one with low fees and flexible investment choices. You can generally invest in any normal investment, unlike most company 401Ks.

Solo-401Ks can be great.

livesoft
Posts: 55514
Joined: Thu Mar 01, 2007 8:00 pm

Re: Solo 401k

Post by livesoft » Fri Aug 11, 2017 8:49 am

Yes and yes.
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bada bing
Posts: 17
Joined: Fri Sep 09, 2016 10:45 am

Re: Solo 401k

Post by bada bing » Fri Aug 11, 2017 1:32 pm

One difference between solo 401K custodians that may be of importance to your situation
would be the ability to roll tIRA money into your solo 401K. 401K's, including solo 401K's,
don't get counted in pro-rata calculations for backdoor Roth conversions.

Vanguard solo 401K doesn't allow rolling in tIRA money. Schwab, for one, does allow it.

Another caveat is that there are annual reporting requirements when the balance in a
solo 401K exceeds $250K.

I opened a solo 401K a couple years ago, mostly for the ability to roll in a tIRA balance and
open up backdoor Roth conversions without pro-rata calcs. I used Schwab and the process
was pretty easy, I got connected pretty rapidly with a very knowledgeable CSR. It definitely
is more involved than opening an IRA and you'll want to get connected to whoever specializes
in solo 401k's at whatever custodian you choose.

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welderwannabe
Posts: 193
Joined: Fri Jun 16, 2017 8:32 am

Re: Solo 401k

Post by welderwannabe » Sat Aug 12, 2017 1:36 pm

Consider this post a vote for Fidelity's Solo401k. Vanguard's stinks and is way too limiting.

No IRA rollovers into their Solo401k. No admiral shares. No ETFs. No brokered CDs. No individual bonds. Please note that some of Vanguard's funds are only offered as ETFs or Admiral shares so this means there are Vanguard funds that are impossible to purchase in a Vanguard Solo401k. These aren't exotic funds either. I am talking about things like Vanguard Intermediate-Term Government Bond Index and
Vanguard Intermediate-Term Corporate Bond Index. The fact you can't own these common Vanguard funds in Vanguard's own 401k product is nuts. Makes no sense to me.

I just completed moving my Vanguard Solo401k over to Fidelity a couple of months back and I haven't looked back.

DSInvestor
Posts: 10514
Joined: Sat Oct 04, 2008 11:42 am

Re: Solo 401k

Post by DSInvestor » Sat Aug 12, 2017 1:57 pm

Make sure you set up your SOlo 401k before DEC 31, 2017 if you wish to defer income from tax year 2017. Do not wait until after year end.

EnjoyIt
Posts: 1219
Joined: Sun Dec 29, 2013 8:06 pm

Re: Solo 401k

Post by EnjoyIt » Sat Aug 12, 2017 2:26 pm

question for the masses:
If one is incorporated they can invest $18k employee contribution into the solo401k and another 25% of salary up to $36k for 2017.
As an example if the corporation made $100k profit and your wages are $80k you can contribute $18k as the employee and another $20k as the employer.

How does that work when you are not incorporated and self employed? Can anyone give an example as above? Is it the same thing?

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welderwannabe
Posts: 193
Joined: Fri Jun 16, 2017 8:32 am

Re: Solo 401k

Post by welderwannabe » Sat Aug 12, 2017 3:49 pm

If you are unincorporated the profit matching works out to be 20% instead of 25%. Other than that it works out pretty much the same way.

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