Author Topic: (stupid?) questions about starting my solo 401(k)  (Read 1317 times)

Nick_Miller

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(stupid?) questions about starting my solo 401(k)
« on: January 15, 2018, 08:24:53 AM »
So I filled out the paperwork this weekend to start a solo 401(k) for my writing business. As usual, Vanguard was awesome with phone assistance. I'm reviewing the huge ass plan paperwork but my biggest question was when can I rollover the 401(k) to a trad IRA, and they said I can dissolve the 401(k) plan at any time, but that I couldn't start one for another year. I like the idea of being able to dissolve the plan when I want without having to end my writing business.

1) My biggest question now is, what does it look like during the year? I have to mail in payments to Vanguard, but I can check balances, etc., online.  Do I just mail in whatever money I want to mail in, whenever I want, just making sure that the total contributions don't ultimately exceed my total compensation?

2) And what exactly is "total compensation?" Since I'm a solo, is that gross revenue, net revenue after expenses, or what?

Example 1: So let's say I earn $20,000.00 writing in 2018, and my deductible expenses are $4,000.00. Can I contribute $18,500, or just $16,000 to the solo 401(k)?

The example under Section 1 of this Forbes article lets the guy take the full employee-side contribution (which makes since given the $100K income example, but it also seems to imply that on the employer side allowing 20% or 25% contribution, that contribution is based on W2 wages, so gross revenue, but I wanted to see if others could confirm.

https://www.forbes.com/sites/greatspeculations/2015/12/03/business-owners-may-be-better-off-with-solo-401k-than-sep-ira/#3dca04b271d0

Example 2: And let's say I have a huge year and earn $40,000 writing W2 income, with $6,000 in expenses. So I could contribute $18,500 on the employee side and then another $8,000 on the employer side (20% of gross revenue of $40,000)?

« Last Edit: January 15, 2018, 08:56:21 AM by Nick_Miller »

bacchi

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #1 on: January 15, 2018, 09:17:43 AM »
1) My biggest question now is, what does it look like during the year? I have to mail in payments to Vanguard, but I can check balances, etc., online.  Do I just mail in whatever money I want to mail in, whenever I want, just making sure that the total contributions don't ultimately exceed my total compensation?

Yes, you deposit money whenever you want. You'll need to log on to your account through the Small Business page and deposit money via ACH there.

Quote
2) And what exactly is "total compensation?" Since I'm a solo, is that gross revenue, net revenue after expenses, or what?

I always end up using a worksheet or online calculator.

https://www.fidelity.com/bin-public/060_www_fidelity_com/documents/customer-service/401k-self-employed-owner-only-business.pdf

Your employEE maximum is based on your profits (i.e., after expenses) minus 1/2 of the SE tax. You base the 20% employER portion on what's left.

Nick_Miller

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #2 on: January 15, 2018, 10:05:19 AM »
Well, holy crap, @bacchi, that's exactly what I needed! The Forbes article didn't mention any of those calculations; they made it seem much more straightforward.

Thanks so much!

ixtap

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #3 on: January 15, 2018, 10:09:30 AM »
FYI, Vanguard will not process the paperwork if you fill it out as it says to.

The one I remember most clearly is for beneficiaries. It expressly says "Check this box" to make your spouse beneficiary and then the named beneficiary sections says you do not need to fill it out if the sole beneficiary is your spouse. They made me fill it out and mail that back in.

There was at least one other issue, as well. And I still don't know how to log in as an individual, rather than an administrator, but since I have it all in one fund to keep costs down, I just need the total, anyway.

Nick_Miller

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #4 on: January 15, 2018, 10:57:10 AM »
@ixtap, thanks for the head's up. And if I remember correctly, the Vanguard guy said that I had to physically mail in payments, but that I could check employer-side stuff on the Vanguard Business website (there's no app, he said), and that I could check my employee-side stuff on my existing Vanguard account/app (I think).

So are you talking about 'logging on' to the Vanguard Business website?


ixtap

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #5 on: January 15, 2018, 11:02:53 AM »
@ixtap, thanks for the head's up. And if I remember correctly, the Vanguard guy said that I had to physically mail in payments, but that I could check employer-side stuff on the Vanguard Business website (there's no app, he said), and that I could check my employee-side stuff on my existing Vanguard account/app (I think).

So are you talking about 'logging on' to the Vanguard Business website?

I log on to the Vanguard Small biz site to see my balance and contributions. I do not have any other accounts at Vanguard.

I do contribute my payments online from my business account. I sat down and did my accounting this weekend, now I need to move money around so that I don't owe any fees on the business account after I make the transfer. Done :) The contribution link is the first one once you are able to set up your small biz account. Like I said, it took quite awhile, several phone calls and followup paperwork for me. And I am generally pretty good at paperwork, having worked in several government jobs and currently in a volunteer position highly regulated by the government.
« Last Edit: January 15, 2018, 11:10:20 AM by ixtap »

bacchi

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #6 on: January 15, 2018, 11:54:08 AM »
https://smallbiz.vanguard.com

Over on the right side is "Log on to Vanguard Small Business OnlineŽ." Click that and you can set up your checking account. I don't know why you'd have to mail in paper checks.

I manage the contributions on the above site and the fund choices in my regular Vanguard account (the same one with a tIRA and a brokerage account).

neo von retorch

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #7 on: January 15, 2018, 12:13:54 PM »
Here's my experience:

* Already had personal brokerage and IRA accounts with Vanguard (including online login)
* Filled out the paper forms to start a solo 401(k) with "me" as the administrator, and additionally the forms to set up "me" as the participant
* Once my business account was created, I was able to use the aforementioned Small Biz login to set up a new online login (as biz admin)
* I was able to link my business checking account to the Vanguard Small Biz account, and I trigger ACH transfers, where I specify how much is employee contributions, how much is employer contribution (profit sharing) and what tax year I'm contributing to
* Once my participant registration was complete... my 401(k) started to appear in my personal vanguard online account. I haven't been able to "do" anything from there in regards to that account, though in theory if I had enabled more "funds" on the small biz side, I could probably reallocate.

Nick_Miller

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Re: (stupid?) questions about starting my solo 401(k)
« Reply #8 on: January 15, 2018, 01:07:26 PM »
@bacchi, I swear that's what he said. I remember saying, "Really?" and he was like "Because of certain laws, blah blah."

@neo von retorch, that's my situation too! Thanks for the walk-through; I'll double check my paperwork and mail it out tomorrow. It's a relief to know that I can link my business account and just make payments that way.