Solo 401(k) to circumvent employer plan

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Posts: 43
Joined: Wed Feb 04, 2015 10:25 pm

Solo 401(k) to circumvent employer plan

Post by mybogledhead » Mon Jul 11, 2016 3:37 pm

My wife is a physician, and in October will be eligible to begin contributing to her practice's retirement plan. Unfortunately, a standard administrative fee of 0.99% is added to each expense ratio to pay for the plan. For example, she can invest in the Vanguard S&P500 index fund, but the ER is 1.04% (0.99 + 0.05). Of note, while she is currently an employee, she will eventually form her own PC and work under the umbrella of an LLP along with the other partners. According to our CPA, she cannot open a solo 401(k) as a self-employed person if she works under the practice's LLP.

I have briefly ready some forum threads in WCI about survey's and solo 401(k). If possible, I would love to have her fill out survey's, use the money to start a solo 401(k), then roll her old retirement savings from a previous employer into that. I'm thinking that she could also then roll a portion of her current employer's 401(k) into her solo 401(k) every 1-3 years in order to keep costs low. Is that possible and legal?

Lastly, if we assume she makes $1500 from survey's in a year, how much would she be able to put into a solo 401(k) and how would that affect the $18K contribution limit of her employer's plan?

Posts: 10796
Joined: Sat Oct 04, 2008 11:42 am

Re: Solo 401(k) to circumvent employer plan

Post by DSInvestor » Mon Jul 11, 2016 3:42 pm

If she's a partner in a business that has employees, there may be controlled group issues that makes her ineligible for Solo 401k on the side income.

If we assume she's eligible for Solo 401k, she needs to be aware that the 18K employee salary deferral limit is shared across all 401k plans. She must make sure that the sum of her Solo 401k employee salary deferrals and her 401k employee salary deferrals do not exceed 18K (24K if age 50+). Each 401k has its own 53K contribution limit. Solo 401k contributions cannot exceed the self employed compensation.

Post Reply