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TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

Does Solo 401k make sense for me?
I have a small side consulting gig where I get $6,000 a year. I also pick up some other odd and end type jobs up to about $2,000 but for all intents and purposes the $6,000 is pretty consistent.

Based on the finance buff's calculator, my $17,300 401k contributions leave me with a salary deferral of $2,200 and a Profit sharing of $1,184.
The reason my 401k contributions aren't $19,500 is because we fail safe harbor. In all reality, the most we can usually put in is $15,000 - $15,500.

If I adjust my 401k contributions to $15,500, then I could put $4,960 into a solo 401k vs. the original $3,384.

Is it even worth me doing a solo 401k for a relatively small amount of money? Would it be worthwhile to lower my 401k contributions to allow myself to be able to stick the difference into the solo 401k? Am I even looking at this correctly?


BestBanker
LSU Fan
Around here.
Member since Nov 2011
13293 posts

re: Does Solo 401k make sense for me?
What about SEP?


LSURussian
LSU Fan
9 acres of paradise in Baton Rouge
Member since Feb 2005
120593 posts

re: Does Solo 401k make sense for me?
quote:

What about SEP?
This.


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LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
20992 posts

re: Does Solo 401k make sense for me?
Solo 401K can be AWESOME if your SEP contributions are limited and you still want to sock more money away.

They are also more expensive to maintain, which can well be worth it if you want to really sock away money.

But run the numbers with a SEP first. Then run the numbers with a SOLO 401K. Then look at the expenses for each, and then you can decide if it's worth it or not.


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
quote:

But run the numbers with a SEP first. Then run the numbers with a SOLO 401K. Then look at the expenses for each, and then you can decide if it's worth it or not.


Ok. Yeah, I just ran a quick worksheet through Fidelity. Looks like I could only contribute $1,110 with a SEP. Much lower than the $4,000+ I could do with a S401k.


Fat Bastard
Boston College Fan
Member since Mar 2009
47354 posts
 Online 

re: Does Solo 401k make sense for me?
solo401k are fantastic. You have full control whereas you do not in employer sponsored 401k stuff and better choices of course of what to invest in.

They are better than a SEP if this is your full time income which it is not unfortunately. SEP only offers owner profit sharing, solo401k does that and employee contribution. There is no catch-up contribution allowed for SEP IRA accounts unlike the solo401k.

LINK

quote:

Is it even worth me doing a solo 401k for a relatively small amount of money?


ugh. prolly not. hate to say that. love my solo401k but unless you have a shite load of money to put in it.....it is more paperwork also to get started. Maybe a SEP you can use for your owner 25% profit sharing and keep your 401k at your job for the employee contribution side. You won't be putting much away at all with that small income from side gig so technically, you WILL NOT be getting the most out of either plan.

But something is better than nothing. SEP prolly best for your situation.

if you only worked for yourself, i would definitely say solo401k. you can put more away overall than a SEp and you are the trustee and plan administrator and control the investments.



This post was edited on 5/22 at 10:34 am


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Maderan
LSU Fan
Member since Feb 2005
655 posts
 Online 

re: Does Solo 401k make sense for me?
SEP no good in this situation.

Roth or backdoor Roth if you want the savings without the deduction.

Solo K if you want the deduction.



TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
quote:

Roth or backdoor Roth if you want the savings without the deduction.

Already do this as a personal investor.

The way I see the Solo is that I can take the difference of what I don't contribute at work (since we fail safe harbor and can only put in about $15,500'ish before we get a check back) and also put in my 25% profit sharing.

quote:

Solo K if you want the deduction

Is that how I would want to do my deferrals? Contribute them to the S401k and then deduct them from income on taxes?


Fat Bastard
Boston College Fan
Member since Mar 2009
47354 posts
 Online 

re: Does Solo 401k make sense for me?
quote:

Contribute them to the S401k and then deduct them from income on taxes?




you always get deduction with your contributions to a solo401k you just cannot contribute/deduct more than you make!

SEP is tax deductible as well.


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
Ok. Well it sounds like I don't have enough profit sharing to make the SEP worthwhile.

The S401k with the combination of employee contributions deferrals plus profit sharing seems like a good idea. I know it's not a ton of money but it's an extra $4,000-$5,000 tax deferred and in the market.

Is that a fair way to look at that?


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Fat Bastard
Boston College Fan
Member since Mar 2009
47354 posts
 Online 

re: Does Solo 401k make sense for me?
quote:

The S401k with the combination of employee contributions deferrals plus profit sharing seems like a good idea.


absolutely.

will run you around 700 to 800 to setup and annual fee to keep you in compliance around 199 maybe less depending on who you use. all tax deductible of course. Since you will be a sole proprietor you will have 20% owner profit sharing. not 25% like for other structures.

quote:

I know it's not a ton of money but it's an extra $4,000-$5,000 tax deferred and in the market.

Is that a fair way to look at that?




absolutely. something is better than nothing. You do whatever you can if cost effective and feasible to keep money in your hands and not the government plus lowering your taxable income through deductions.
This post was edited on 5/22 at 11:01 am


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
quote:

bsolutely. something is better than nothing. You do whatever you can if cost effective and feasible to keep money in your hands and not the government plus lowering your taxes paid through deductions.



Sweet. Yeah, I feel like we are doing as much as we can. Can't hurt to add a little more.

My 401k: $17,300 currently but will get a check back. Will probably knock it to $15,500 for bigger S401k contribtution.

My ROTH: $6,000 via backdoor
Her 403b: $19,500
Her 457: $10,000
Her Roth: $6,000 via backdoor
TRSL pension which is 8% of her salary

Possible S401k: $4,500/year


LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
20992 posts

re: Does Solo 401k make sense for me?
Man, the failed testing on your "day job" 401K really blows. Ugh.

To me, if the "net" (additional amount you can save in solo over SEP, over additional costs of solo over SEP) is $1 or more, I'd do it, because not only are you saving more money and lowering current income tax, but you are investing tax-deferred.
quote:

My 401k: $17,300 currently but will get a check back. Will probably knock it to $15,500 for bigger S401k contribtution.

My ROTH: $6,000 via backdoor
Her 403b: $19,500
Her 457: $10,000
Her Roth: $6,000 via backdoor
TRSL pension which is 8% of her salary

Possible S401k: $4,500/year


So your wife, if she is in TRSL, I am assuming is in public education, and she is saving $35,500, plus 8 percent of her salary? Does she actually have a take-home direct deposit???

I don't know how old y'all are, what you do for a living, or if y'all have kids, but y'all are killing it.
This post was edited on 5/22 at 11:16 am


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
Looks like I could set this up fairly easily through Vanguard where our IRAs are. I'm a simple portfolio guy, so I will only have 2-3 funds in the plan.

Account service fees
We charge $20 a year for each Vanguard fund held in a Vanguard Individual 401(k) account. The fee may be waived in certain circumstances.

Account setup & maintenance
There's no fee to establish an account.
For one-participant plans, annual filing of Form 5500 is required once the plan's assets reach $250,000 at the end of your plan year or you terminate your plan. We'll provide you with information each year to help you complete the form.


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
quote:

So your wife, if she is in TRSL, I am assuming is in public education, and she is saving $35,500, plus 8 percent of her salary?

Yes. That is correct.

quote:

public education


She is a physician through the LSU network. She has clinical responsibilities as well as a teacher through LSUHSC.

quote:

Does she actually have a take-home direct deposit???


Yes, but that is probably obvious now that I answered the other questions and gave some anecdotal information.


LSUFanHouston
LSU Fan
NOLA
Member since Jul 2009
20992 posts

re: Does Solo 401k make sense for me?
quote:

She is a physician through the LSU network. She has clinical responsibilities as well as a teacher through LSUHSC.


Ahh, ok, yeah, I forgot college employees are in TRSL. I was thinking she was a schoolteacher =)


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Fat Bastard
Boston College Fan
Member since Mar 2009
47354 posts
 Online 

re: Does Solo 401k make sense for me?
quote:

Looks like I could set this up fairly easily through Vanguard where our IRAs are. I'm a simple portfolio guy, so I will only have 2-3 funds in the plan.



fair enough. yes, my examples were if you went through a company like i do and not using a brokerage. Plus i invest in things not found in brokerages thus my need for total checkbook control.

quote:

annual filing of Form 5500 is required once the plan's assets reach $250,000


yup.


TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
Can I make contributions whenever I want or as I receive my quarterly payments?


Fat Bastard
Boston College Fan
Member since Mar 2009
47354 posts
 Online 

re: Does Solo 401k make sense for me?
quote:

Can I make contributions whenever I want or as I receive my quarterly payments?




as long as you know you will be covered/accurate at tax day i do not see why not throughout year/DCA.

I normally put my employee contribution lump sum in by dec 31 then my owner profit sharing by tax day which is march 15 for me.



TheWiz
LSU Fan
Third World, LA
Member since Aug 2007
10612 posts

re: Does Solo 401k make sense for me?
Ok. Perfect. Thanks for all of the help. Just got my EIN. I will read over the i401k package this weekend and get it set up.


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