My Wife is going to do an independent contracting job-401k?

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TexMexIndex
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My Wife is going to do an independent contracting job-401k?

Post by TexMexIndex » Fri Aug 17, 2018 11:07 am

So have read a little about a solo 401k but need to read more. Does vanguard have one?

She would likely make 33k Sep-Dec 18 and 33k Jan-Mar19. Is the limit 18.5 K a year or is it more? Can she company match herself somehow?

Need some education on thus subject. I was reading about increased Social Security and Medicare and prepay in quarterly. That seems doable should I meet with a tax person to set this all up?

dcdowden
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Re: My Wife is going to do an independent contracting job-401k?

Post by dcdowden » Fri Aug 17, 2018 11:19 am

I had a solo 401K with Fidelity for a few years while I was doing a fair amount of independent consulting. It was fairly easy to set up and maintain. I have now rolled all that money into my IRA at Fidelity.

You can contribute more than the 18K each year. Here is a link to a Kiplinger article that explains.

https://www.kiplinger.com/article/retir ... -2018.html

niceguy7376
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Re: My Wife is going to do an independent contracting job-401k?

Post by niceguy7376 » Fri Aug 17, 2018 11:30 am

Is this your spouse only job or does she have another job as employee and this is a self employed job?

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dual
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Re: My Wife is going to do an independent contracting job-401k?

Post by dual » Fri Aug 17, 2018 11:36 am

You are a lot better off researching this yourself than relying on random strangers on a website.

A quick search turns up this https://www.irs.gov/retirement-plans/on ... 401k-plans

Go to your public library and look up the JKLasser tax book and other references.

My experience
I made my living as an independent contractor, had a solo401k for years, and think they are great but YMMV.
Plus:
much larger contribution limit than alternatives like SEP IRA
Minus:
a lot more complex to set up and administer. Watch out for the dreaded annual 5500 form once you reach the $$ limit where it is required.

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TexMexIndex
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Re: My Wife is going to do an independent contracting job-401k?

Post by TexMexIndex » Fri Aug 17, 2018 11:44 am

niceguy7376 wrote:
Fri Aug 17, 2018 11:30 am
Is this your spouse only job or does she have another job as employee and this is a self employed job?
Likely her only job in 18 and 19.

jimmyrules712
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Re: My Wife is going to do an independent contracting job-401k?

Post by jimmyrules712 » Fri Aug 17, 2018 12:35 pm

Vanguard has one but most people agree Fidelity's is better. There's a good comparison detailed here:
https://thecollegeinvestor.com/18174/co ... k-options/

My wife is a contractor with a solo 401k at Fidelity that I set up and help her manager.

There's 2 limits, one for the employee contributions and one for the employer profit sharing contributions. As a self employed person you can make both types of contributions. The employee limit is her income up to $18,500. The employer limit 25% of her income (which should already have expenses deducted from it) minus her employee contributions and minus one-half of her self-employment tax.

So if she makes $33k per year after expenses she could contribute $18,500 employee + $6,133.72 for the profit sharing contribution.

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TexMexIndex
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Re: My Wife is going to do an independent contracting job-401k?

Post by TexMexIndex » Fri Aug 17, 2018 4:39 pm

Tthanks.

J295
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Re: My Wife is going to do an independent contracting job-401k?

Post by J295 » Sat Aug 18, 2018 6:12 am

Very easy. We use Fidelity. Painless. Research as much as you want, but I don’t think it requires a lot of research or deep diving.

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RickBoglehead
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Re: My Wife is going to do an independent contracting job-401k?

Post by RickBoglehead » Sat Aug 18, 2018 6:22 am

Vanguard allows Pre-Tax and ROTH contributions on the employee side. Fidelity (per the article linked to) does not allow ROTH. Vanguard doesn't have their Admiral Funds though.

I chose Vanguard, no fees for me.

If she is 50 or older, the employee contribution increases from $18,500 to $24,500.
Last edited by RickBoglehead on Sat Aug 18, 2018 6:44 am, edited 1 time in total.
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billfromct
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Re: My Wife is going to do an independent contracting job-401k?

Post by billfromct » Sat Aug 18, 2018 6:41 am

I helped my daughter set up a Vanguard Solo 401k 4 or 5 years ago when she had a 6 month government independent contract worker job.

Since she was right out of college, 22 or 23 years old in a very low tax bracket, she funded the Vanguard Roth Solo 401k. She was also able to fund her Roth IRA since contributing to the Roth Solo 401k didn't reduce her taxable earned income for that year.

Since all her other mutual fund investments were with Vanguard, along with the ability to contribute to a Roth Solo 401k made Vanguard the natural choice.

If your wife has her investments with Fidelity & she isn't going to use a Roth Solo IRA, then Fidelity would be the best choice.

bill

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Re: My Wife is going to do an independent contracting job-401k?

Post by Spirit Rider » Sat Aug 18, 2018 6:52 am

Vanguard is not the best option for a one-participant 401k. Their Individual 401k plan has four disadvantages compared to the other four low cost mainstream one-participant 401k providers.
  1. None of the other mainstream one-participant 401k plan providers charge any fees. There is a $20 fee for each fund you hold in Vanguard's i401k. These fees will be waived when assets reach a required amount.
  2. Vanguard does not offer their lower expense ratio Admiral Shares in their i401k. They only offer the more expensive Investor Shares. This will cost ~0.10% in lower returns compared to index funds available at the other providers.
  3. Vanguard does not allow incoming rollovers. A One-participant 401k may be the best option now or in the future for rolling over previous employer plans or traditional IRA accounts. This will be necessary if your ROTH MAGI exceeds the income limit for direct Roth IRA contributions.
  4. Vanguard does not allow employee eligibility restrictions. This will prevent the hiring of children and/or employees < 21 or part-time and still keep the one-participant 401k plan.
If you need/want a Roth 401k option, the best choices would be ETrade or TD Ameritrade.

Otherwise the best choices are Fidelity or Schwab.

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