Two Solo 401k Questions

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taxck33
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Two Solo 401k Questions

Post by taxck33 » Thu Apr 19, 2018 9:29 am

I just want to make sure I'm doing things correctly since I'm new to the world of self-employed retirement vehicles. I'm planning on opening a Solo 401k shortly for 2018 and just had a couple of questions.

1. If I hypothetically net $12,000 this upcoming year, am I allowed to contribute $12,000 to the Solo 401k AND $5,500 to my Roth IRA? Or is the TOTAL contribution to both limited to the amount I made?

2. I'm currently working as an independent contractor walking dogs on Rover.com but also am in the process of setting up my own single member LLC for dog walking. For the first year at least, I'm anticipating doing both at the same time. Does this sound like the correct way to handle things:
- Open up a Solo 401k under my name
- Contribute Rover.com earnings from my personal bank account (which is where they're deposited)
- Pay my personal bank account from my LLC business bank account, and then contribute those earnings from my personal account

Thanks!

pshonore
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Re: Two Solo 401k Questions

Post by pshonore » Thu Apr 19, 2018 11:08 am

401K would be limited to net profit (you do have expenses, right? as an example the LLC fees) - 1/2 of SE tax paid. Approx $11152.

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Thu Apr 19, 2018 12:47 pm

pshonore wrote:
Thu Apr 19, 2018 11:08 am
401K would be limited to net profit (you do have expenses, right? as an example the LLC fees) - 1/2 of SE tax paid. Approx $11152.
Oh right, yeah, I was assuming a net of $12,000. I guess what I'm trying to figure out is if I dump my total earned income into the Solo 401k, am I still allowed to contribute $5500 to the Roth IRA? (Or conversely, if I contribute $5500 to my Roth IRA, can I only contribute $6500 to the Solo 401k?)

billfromct
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Re: Two Solo 401k Questions

Post by billfromct » Thu Apr 19, 2018 3:09 pm

If you contribute the total net earnings of $12,000 into a tax deductible Solo 401k, you won't have any reported earnings, so you can't contribute anything to a Roth IRA. You would need at least $5,500 of earned income to contribute $5,500 to a Roth IRA.

You could contribute $12,000 (earned income) to a Roth Solo 401k, then you would have $12,000 of earned income & you could also contribute $5,500 to a Roth IRA. Of course you have to be mindful of self employment tax (SS & Medicare).

My daughter did this when she was a independent contact worker for the Federal government. She had independent contractor earnings of about $8,000 (after deducting 1/2 self employment tax). She contributed $8,000 to her Roth Solo 401k & $5,500 to her Roth IRA. She had $8,000 of earned income from her independent contractor job as well as a small income from a W2 job.

The numbers for my daughter's situation may not be exact as it was a while back, but the process may help your situation.

bill

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Thu Apr 19, 2018 3:13 pm

Thank you! That's exactly what I was looking for (and I should have mentioned that I'm planning on doing a Roth Solo 401K).

Spirit Rider
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Re: Two Solo 401k Questions

Post by Spirit Rider » Thu Apr 19, 2018 4:33 pm

What is your reasoning for the LLC?

An LLC is not required in order to adopt a one-participant 401k and make contributions.

An LLC provides little to no liability protection for a dog walking business. An LLC provides no liability protection for the personal acts (walking the dogs) of it's owner(s).

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Thu Apr 19, 2018 6:41 pm

Spirit Rider wrote:
Thu Apr 19, 2018 4:33 pm
What is your reasoning for the LLC?

An LLC is not required in order to adopt a one-participant 401k and make contributions.

An LLC provides little to no liability protection for a dog walking business. An LLC provides no liability protection for the personal acts (walking the dogs) of it's owner(s).
My reasoning was for protecting personal savings. Why wouldn't an LLC provide liability protection for a dog walking business? If that's really the case, what's the proper way of protecting my personal savings? I spoke to two lawyers I know and someone who formed his own dog walking LLC, so I'm a bit concerned hearing this (especially since I've already filed for the LLC).

I'm going to have insurance too, but the max care-custody-control / animal bailee insurance seems to only be $30,000. One company seems to offer $200,000 and when I called them they acted as if I were nuts about even bringing it up because I wasn't boarding horses.

CFM300
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Re: Two Solo 401k Questions

Post by CFM300 » Thu Apr 19, 2018 7:07 pm

taxck33 wrote:
Thu Apr 19, 2018 9:29 am
- Open up a Solo 401k under my name
I think you'll need to get an EIN distinct from your SSN to open the 401(k).

CFM300
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Re: Two Solo 401k Questions

Post by CFM300 » Thu Apr 19, 2018 7:10 pm

taxck33 wrote:
Thu Apr 19, 2018 6:41 pm
My reasoning was for protecting personal savings. Why wouldn't an LLC provide liability protection for a dog walking business? If that's really the case, what's the proper way of protecting my personal savings? I spoke to two lawyers I know and someone who formed his own dog walking LLC, so I'm a bit concerned hearing this (especially since I've already filed for the LLC).

I'm going to have insurance too, but the max care-custody-control / animal bailee insurance seems to only be $30,000. One company seems to offer $200,000 and when I called them they acted as if I were nuts about even bringing it up because I wasn't boarding horses.
An LLC won't shield you from liability from your own actions. It might (depending on the circumstances) protect you from liability for the actions of an employee.

See the "Exceptions" listed here:
https://www.nolo.com/legal-encyclopedia ... 30163.html

Business insurance is what you need. I don't know enough about dog walking to provide more advice, but make sure you're protected against the worst-case scenario. (A large breed bites someone when you're holding the leash? A very expensive dog gets off leash and is hit by a car?)

cadreamer2015
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Re: Two Solo 401k Questions

Post by cadreamer2015 » Thu Apr 19, 2018 7:42 pm

An LLC won't shield you from liability from your own actions. It might (depending on the circumstances) protect you from liability for the actions of an employee.
+1

You need business liability insurance.
De gustibus non est disputandum

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Thu Apr 19, 2018 9:07 pm

cadreamer2015 wrote:
Thu Apr 19, 2018 7:42 pm
An LLC won't shield you from liability from your own actions. It might (depending on the circumstances) protect you from liability for the actions of an employee.
+1

You need business liability insurance.
Is business liability insurance different from general liability insurance? This is the insurance I was thinking about getting:
http://www.petsitllc.com/pet_business_insurance.phtml

So in your opinion, is having gotten the LLC a complete waste? I'm going to be the only member and only employee. Given the amount of licensing and paperwork that's going to follow, in my situation would you just accept it as a $200 loss and switch to sole proprietorship?

I'm just concerned because I can't find animal bailee insurance that covers my savings. The highest I've found is one company that offers a $200,000 limit - that doesn't feel like enough to me, though I am a dog lover to the core and feel like I could get sued for much, much more than that given that they're family.

CFM300
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Re: Two Solo 401k Questions

Post by CFM300 » Thu Apr 19, 2018 9:58 pm

taxck33 wrote:
Thu Apr 19, 2018 9:07 pm
This is the insurance I was thinking about getting:
http://www.petsitllc.com/pet_business_insurance.phtml
I don't know anything about that insurance company of course, but the policy limits look reasonable to me. Depending on your net worth, you might also want to add a personal umbrella policy. They're pretty cheap.
taxck33 wrote:
Thu Apr 19, 2018 9:07 pm
So in your opinion, is having gotten the LLC a complete waste?
It's possible that some people won't hire you unless you're an LLC. The rationale is that if I hire and make payments to you as an LLC, then there's no way you can later try to claim that you were actually my employee. (If you were my employee, I'd be responsible for withholding taxes, paying into a state unemployment insurance fund, etc.)

But yeah, otherwise probably just a waste. What are the annual taxes/fees?

If you decide to drop the LLC, you might still consider registering with your state to use a fictitious business name. That would allow you to do business under a name other than your own -- e.g., "Fido Executive Services."

cadreamer2015
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Re: Two Solo 401k Questions

Post by cadreamer2015 » Fri Apr 20, 2018 12:22 pm

I would have your Rover.com earnings deposited into your business account whatever else you do.

I suppose it is possible, but I can't imagine a client of a dog walker searching for only dog walkers who had an LLC or S Corp. How often does that question come up when you speak with new or existing clients?

Unless you will have employees in your dog walking business, it appears to me that having an LLC is essentially useless for you and a needless expense and complication. But IANAL.
De gustibus non est disputandum

Spirit Rider
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Re: Two Solo 401k Questions

Post by Spirit Rider » Fri Apr 20, 2018 2:01 pm

I think the decision on whether to keep the LLC or not, should be based on yearly costs. The OP should answer CFM300's question of what your state taxes/fees are on the LLC.

The worst case is CA which charges a $800 minimum franchise tax/year, waived the first year I think, plus only a $20 every other year information filing fee < $250K, I pay a $100/year annual report fee, about 30 states are <= $50 and some are even $0.

Here is a list of the filing and annual fees of all 50 states LLC Annual Fees by State

The only state I saw that has a $200 filing fee was NY and their annual fee is $9. If it is NY and your annual fee is $9, I would definitely keep the LLC. At this point the $200 is a sunk cost and the $9/year is trivial.

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Fri Apr 20, 2018 5:28 pm

Spirit Rider wrote:
Fri Apr 20, 2018 2:01 pm
I think the decision on whether to keep the LLC or not, should be based on yearly costs.
Here is a list of the filing and annual fees of all 50 states LLC Annual Fees by State
It's Washington State - it was an initial $200 fee, and every year it costs $60 to renew. If I move forward with this, I also have to register with the WA secretary of state ($20) and get a local business license in every town I walk a dog and renew them every year (so a few hundred dollars). Initially I was told that sole proprietorships don't need the local business licenses, but that really doesn't sound right and doing some research now verifies my suspicion.

So I guess for $60 a year keeping the LLC is probably worth it just for a little bit of extra protection and peace of mind, however minor. I wonder if it's still worth seeing an accountant about absolutely making sure I'm doing everything I can to avoid the corporate veil being pierced, but it sounds as if I'm exposed right off the bat.

How do people with savings start single member businesses then? It feels incredibly risky.

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Fri Apr 20, 2018 5:30 pm

CFM300 wrote:
Thu Apr 19, 2018 9:58 pm
I don't know anything about that insurance company of course, but the policy limits look reasonable to me. Depending on your net worth, you might also want to add a personal umbrella policy. They're pretty cheap.
That's a good idea - I'm very unfamiliar with umbrella policies and need to research them. I have less than a million dollars so I'm covered from a general liability standpoint by that insurance, but it's really strange to me how the care-custody-control limit is $15,000 per incident and $30,000 annually. That seems really low to me but also seems to be the standard.

CFM300
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Re: Two Solo 401k Questions

Post by CFM300 » Fri Apr 20, 2018 6:10 pm

taxck33 wrote:
Fri Apr 20, 2018 5:28 pm
How do people with savings start single member businesses then? It feels incredibly risky.
Insurance, and doing as much as possible to mitigate risks and liabilities -- e.g., following best practices, having requisite training, certifications, etc.

pshonore
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Re: Two Solo 401k Questions

Post by pshonore » Sat Apr 21, 2018 11:37 am

taxck33 wrote:
Fri Apr 20, 2018 5:30 pm
CFM300 wrote:
Thu Apr 19, 2018 9:58 pm
I don't know anything about that insurance company of course, but the policy limits look reasonable to me. Depending on your net worth, you might also want to add a personal umbrella policy. They're pretty cheap.
That's a good idea - I'm very unfamiliar with umbrella policies and need to research them. I have less than a million dollars so I'm covered from a general liability standpoint by that insurance, but it's really strange to me how the care-custody-control limit is $15,000 per incident and $30,000 annually. That seems really low to me but also seems to be the standard.
Personal umbrella policies generally do not cover businesss activity but usually cover automobile accidents, people who might be injured on your property, etc.

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Sat Apr 21, 2018 11:51 am

pshonore wrote:
Sat Apr 21, 2018 11:37 am
taxck33 wrote:
Fri Apr 20, 2018 5:30 pm
CFM300 wrote:
Thu Apr 19, 2018 9:58 pm
I don't know anything about that insurance company of course, but the policy limits look reasonable to me. Depending on your net worth, you might also want to add a personal umbrella policy. They're pretty cheap.
That's a good idea - I'm very unfamiliar with umbrella policies and need to research them. I have less than a million dollars so I'm covered from a general liability standpoint by that insurance, but it's really strange to me how the care-custody-control limit is $15,000 per incident and $30,000 annually. That seems really low to me but also seems to be the standard.
Personal umbrella policies generally do not cover businesss activity but usually cover automobile accidents, people who might be injured on your property, etc.
Shoot, is there any way to do it then?

Also, here's an interesting question I just thought of - my personal savings are much greater than the amount that's going to be in the business at any point (and likely more than I will ever make doing this). Rather than insuring my LLC, should I actually be insuring myself? Both?

CFM300
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Re: Two Solo 401k Questions

Post by CFM300 » Sat Apr 21, 2018 12:59 pm

taxck33 wrote:
Sat Apr 21, 2018 11:51 am
Shoot, is there any way to do it then?

Also, here's an interesting question I just thought of - my personal savings are much greater than the amount that's going to be in the business at any point (and likely more than I will ever make doing this). Rather than insuring my LLC, should I actually be insuring myself? Both?
Commercial umbrella policies are available for businesses.

You're right to worry about protecting your assets, but this is not an insurmountable obstacle. Assess your risks. Talk to insurance companies. Talk with others who are doing what you're doing. Search the internet.

Here's an article that outlines most of what has been said here, and more -- for instance, are you bonded?

http://smallbusiness.chron.com/become-d ... 14517.html

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Sun Apr 22, 2018 11:10 am

CFM300 wrote:
Sat Apr 21, 2018 12:59 pm
Here's an article that outlines most of what has been said here, and more -- for instance, are you bonded?

http://smallbusiness.chron.com/become-d ... 14517.html
I was planning on being bonded, but now I'm not so sure and want to make sure of something first - does it only help if it's proven you've stolen something, or does it help if you're accused of stealing something? I'm going to be my LLC's only employee, and I have no plans of stealing anything obviously so I'm wondering if it makes sense. If I had employees then yeah, it would be a no-brainer.

I've been doing a ton of research but not getting anywhere really, other than learning that General Liability insurance and Care-Custody-Control / Animal Bailee insurance are the two most important insurance types to have. I'm really curious as to any thoughts about whether I should be insuring myself or my LLC (or both) - my first thought was the LLC, but then if we're theoretically separate entities, I'm the one with the actual savings so it feels as if it should be me. I've called the major insurance companies and they have no idea what I'm talking about, but when they open tomorrow I'll call the pet sitting specific ones.

danaht
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Re: Two Solo 401k Questions

Post by danaht » Sun Apr 22, 2018 11:28 am

According to Rover.com - it gives you some protection (up to 1,000,000). So I would continue to use Rover.com, if your assets are under 1,000,000. I think it only makes sense to stop using Rover.com - if you plan to create a business with many employees. In that case - creating the LLC, and getting extra insurance would be well worth it.

taxck33
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Re: Two Solo 401k Questions

Post by taxck33 » Sun Apr 22, 2018 11:41 am

danaht wrote:
Sun Apr 22, 2018 11:28 am
According to Rover.com - it gives you some protection (up to 1,000,000). So I would continue to use Rover.com, if your assets are under 1,000,000. I think it only makes sense to stop using Rover.com - if you plan to create a business with many employees. In that case - creating the LLC, and getting extra insurance would be well worth it.
I think that's just the general liability insurance though - so if a dog bites someone walking by, for instance. Their care-custody-control is still very low I believe. They take 20% off of our rate, so since I plan on doing this pretty much forever, getting my own insurance and doing my own thing seems to make much more sense. It would pay for itself in a month.

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