Should I bother with solo 401k?

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knightrider
Posts: 525
Joined: Fri Jun 06, 2014 11:20 am

Should I bother with solo 401k?

Post by knightrider » Tue Aug 13, 2019 2:43 pm

I have a side-gig that I operate as a sole proprietor. Net income is around ~20k/year. I've been dutifully contributing ~3-4k/year to a SEP IRA I opened many years ago.

Now I am wondering is there any benefit to converting the SEP IRA to a solo 401k? I already have a 401k at work that I max out. So I presume my contributions limits for the Solo 401k would be same as the SEP IRA?

Silk McCue
Posts: 2630
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Re: Should I bother with solo 401k?

Post by Silk McCue » Tue Aug 13, 2019 2:53 pm

We have a Wiki for Solo401ks. Take a look.

https://www.bogleheads.org/wiki/Solo_401(k)_plan

Cheers

Topic Author
knightrider
Posts: 525
Joined: Fri Jun 06, 2014 11:20 am

Re: Should I bother with solo 401k?

Post by knightrider » Tue Aug 13, 2019 3:07 pm

Silk McCue wrote:
Tue Aug 13, 2019 2:53 pm
We have a Wiki for Solo401ks. Take a look.

https://www.bogleheads.org/wiki/Solo_401(k)_plan

Cheers
Very comprehensive wiki! It says, "if you are maxing out your employer plan you can only make employer contributions to a Solo 401(k) plan". And employer contributions are defined as, " up to 20% of net adjusted businesses profit. " So this sounds like exactly the same as SEP IRA limit? So seems like no point to bother with solo 401k..

aristotelian
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Re: Should I bother with solo 401k?

Post by aristotelian » Tue Aug 13, 2019 3:13 pm

The biggest reason would be to allow backdoor Roth.

HomeStretch
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Re: Should I bother with solo 401k?

Post by HomeStretch » Tue Aug 13, 2019 3:17 pm

aristotelian wrote:
Tue Aug 13, 2019 3:13 pm
The biggest reason would be to allow backdoor Roth.
+1.

You also have the ability to do Roth contributions and In Plan Roth Rollovers with a Solo 401k (provider permitting) which you can’t do with a SEP IRA.

megabad
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Re: Should I bother with solo 401k?

Post by megabad » Tue Aug 13, 2019 3:25 pm

knightrider wrote:
Tue Aug 13, 2019 2:43 pm
I have a side-gig that I operate as a sole proprietor. Net income is around ~20k/year. I've been dutifully contributing ~3-4k/year to a SEP IRA I opened many years ago.

Now I am wondering is there any benefit to converting the SEP IRA to a solo 401k? I already have a 401k at work that I max out. So I presume my contributions limits for the Solo 401k would be same as the SEP IRA?
I would think the primary benefit of the 401k for your would be Roth space (through backdoor Roth or megabackdoor Roth). But other than that, I would probably stick with the SEP IRA. If you have a ton of side gig income, you would be able to contribute another 56,000 per year which seems pretty advantageous.

angelescrest
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Location: The Third Coast

Re: Should I bother with solo 401k?

Post by angelescrest » Tue Aug 13, 2019 4:16 pm

In many states, don’t 401k plans also receive the greatest protections? Something to consider.

megabad
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Re: Should I bother with solo 401k?

Post by megabad » Tue Aug 13, 2019 4:19 pm

angelescrest wrote:
Tue Aug 13, 2019 4:16 pm
In many states, don’t 401k plans also receive the greatest protections? Something to consider.
Good point depending on state regarding potential protection differences. Forgot this.

edit: clarification
Last edited by megabad on Tue Aug 13, 2019 4:50 pm, edited 1 time in total.

HomeStretch
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Re: Should I bother with solo 401k?

Post by HomeStretch » Tue Aug 13, 2019 4:36 pm

angelescrest wrote:
Tue Aug 13, 2019 4:16 pm
In many states, don’t 401k plans also receive the greatest protections? Something to consider.
Solo 401ks aren’t covered by federal ERISA like employer-sponsored 401ks. I *think* Solo 401ks (as well as employer-sponsored 401ks) do have better bankruptcy protections than a SEP-IRA. State protection varies by state.

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