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Solo 401k vs SEP IRA for new LLC - S election
Posted on 4/12/21 at 4:21 pm
Posted on 4/12/21 at 4:21 pm
I know most on here suggest solo 401k for a one member LLC because of the higher contibutations with both employee and employer, loan possibility, elective deferrals, and catch up after age 50.
It is unclear to me whether I could set up a back door Roth IRA from the SEP IRA. If I could I would be inclined to pick the SEP IRA over the solo 401k. I know solo 401k lets you make contributions to a Roth 401k but I would prefer to have a Roth IRA over a Roth 401k.
For those who have the solo 401k, which broker and funds do you suggest? Do you have the same limitations as employee 401ks thru businesses as far as limited options.
Thanks in advance.
It is unclear to me whether I could set up a back door Roth IRA from the SEP IRA. If I could I would be inclined to pick the SEP IRA over the solo 401k. I know solo 401k lets you make contributions to a Roth 401k but I would prefer to have a Roth IRA over a Roth 401k.
For those who have the solo 401k, which broker and funds do you suggest? Do you have the same limitations as employee 401ks thru businesses as far as limited options.
Thanks in advance.
This post was edited on 4/12/21 at 7:25 pm
3
Posted on 4/12/21 at 5:41 pm to Hornetjames3
quote:
but I would prefer to have a Roth IRA over a Roth 401k
What's your reasoning for this? I haven't heard this one before.
In any event... a SEP IRA is treated like any other IRA, so you can contribute to a SEP and then do a Roth Conversion.
Posted on 4/12/21 at 7:08 pm to LSUFanHouston
I may be wrong. But for the SEP IRA, $58,000 or 25% of the salary can be placed in the SEP IRA transferred to a backdoor Roth IRA.
For a Solo 401k, $58,000 or 25% of the salary from the "employer" and $19,500 total from the "employee" so an overall greater amount but only the employee $19,000 can be converted to a Roth 401k.
SEP IRA: $58,000 max into Roth IRA
Solo 401k: $19,000 max into Roth 401k but $58,000 into the rest of the 401k
Wouldn't 58,000 pretax be better?
For a Solo 401k, $58,000 or 25% of the salary from the "employer" and $19,500 total from the "employee" so an overall greater amount but only the employee $19,000 can be converted to a Roth 401k.
SEP IRA: $58,000 max into Roth IRA
Solo 401k: $19,000 max into Roth 401k but $58,000 into the rest of the 401k
Wouldn't 58,000 pretax be better?
This post was edited on 4/12/21 at 7:25 pm
Posted on 4/13/21 at 10:21 am to Hornetjames3
I would choose the solo 401k. This would preserve your ability to do a back door roth IRA (assuming you have no other IRAs). You could also chose a Roth option on the solo 401k.
You typically wouldn't do a back door roth from a SEP, because most of the time the SEP is funded with deductible or pre-tax dollars. It can be done though.
You typically wouldn't do a back door roth from a SEP, because most of the time the SEP is funded with deductible or pre-tax dollars. It can be done though.
Posted on 4/13/21 at 10:37 am to Hornetjames3
quote:
Wouldn't 58,000 pretax be better?
1) Are you sure you are going to be able to max this out?
2) Can you set up your solo plan to allow for in-service withdrawals? If so, that's how you can get the employer side into a Roth.
Posted on 4/13/21 at 11:33 am to Hornetjames3
Broker? Fack that. Get complete checkbook control by getting a company to set you up with the qualified retirement plan then you open a checking account at local bank. Bring papers and EIN paper and setup. You are the trustee and plan administrator. You invest in whatever you want barring the few restrictions. Light years better than being limited to one broker and their investments only.
Posted on 4/13/21 at 6:00 pm to Fat Bastard
quote:
Broker? Fack that. Get complete checkbook control by getting a company to set you up with the qualified retirement plan then you open a checking account at local bank. Bring papers and EIN paper and setup. You are the trustee and plan administrator. You invest in whatever you want barring the few restrictions. Light years better than being limited to one broker and their investments only.
I am in the process of setting up a checking and saving account at a local credit union (Xplore). What company would you suggest for setting up a qualified retirement plan?
Posted on 4/14/21 at 7:40 am to Hornetjames3
IRA FINANCIAL GROUP.
my buddy Adam
Bergman is the tax attorney owner. Has office in Miami. Great service.
LINK
my buddy Adam
Bergman is the tax attorney owner. Has office in Miami. Great service.
LINK
This post was edited on 4/14/21 at 7:50 am
Posted on 4/14/21 at 1:55 pm to Fat Bastard
We have a SEP. THe limit on earning for 2020 was $285,000. It’s $290,000 for 2021. Do you have employees? If so, all must be treated equally. So if you fund yourself 10% you must fund the employee 10% as well. You can have restrictions such as for employees to have to wait 1,2 or 3 years and that they must be at least 21 years old. We like ours. Have had it for 30 years. The $58,000 funding is unlikely unless you have so much income you can afford 25%. We do 8-10%. We have many who max out. The max out at 8% in 2020 was $22,800.
It is simple and requires almost no administration.
It is simple and requires almost no administration.
Posted on 4/14/21 at 2:17 pm to dovehunter
quote:
We have a SEP. THe limit on earning for 2020 was $285,000. It’s $290,000 for 2021. Do you have employees? If so, all must be treated equally. So if you fund yourself 10% you must fund the employee 10% as well. You can have restrictions such as for employees to have to wait 1,2 or 3 years and that they must be at least 21 years old. We like ours. Have had it for 30 years. The $58,000 funding is unlikely unless you have so much income you can afford 25%. We do 8-10%. We have many who max out. The max out at 8% in 2020 was $22,800.
Thanks for the info. I am a single member LLC. Do you do a backdoor Roth for your SEP IRA?
Posted on 4/14/21 at 2:22 pm to Fat Bastard
quote:
IRA FINANCIAL GROUP.
my buddy Adam
Bergman is the tax attorney owner. Has office in Miami. Great service.
Thanks for the tips. I saw their website. They look like a great group. My question is could I start it on my own with Vanguard for example and not have to pay the initial and yearly fees to make the process cheaper. Or is the solo 401k logistics/administrative so complex that I should pay Adam's group the fees and go thru him?
Posted on 4/14/21 at 2:36 pm to Hornetjames3
No. The earnings limit is too low unless i just don’t understand the rule. I don’t know what a back door Roth means.
Posted on 4/14/21 at 3:00 pm to Hornetjames3
You’d have to ask vanguard what they charge. No you can do it through whomever. Question is do you want full control and invest in what you want?? If not then vanguard might be a great fit for you. I man if all you are interested in is stock market it could a good for for you. Check them out. I have accounts with them. But I’m a RE guy and use my solo401k for that.
This post was edited on 4/14/21 at 3:03 pm
Posted on 4/14/21 at 3:32 pm to Hornetjames3
It’s free through Vanguard and easy to set up. If you have any questions their customer service is great.
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