Help with a Self Employed question and 401k Solo

[KonaLifeJC]

Hello MMM Forum,

I'm a rookie here, the first post :)

I am self-employed and have been funding an IRA for the last couple of years which is $5,500 each for my wife & I.  2 Roths for my kids.  $5,500 is too low & slow to make a dent to FIRE, looks like my options are SEP IRA or 401k only.  The accountant is telling me the way we do taxes for my S-corp; the SEP is not a great idea, so the 401k looks best.

Here is my situation/question and would enjoy any advice:

I own a company that takes little time to run ( my wife and I are the only two employed ),  so I don't see in the future ever retiring, but yet keeping an income that places me in a higher tax bracket for life.

1) Is placing our funds in this 401k Solo the best thing for tax reasons?  Second, throw all extra money into a taxable Vanguard fund?

2)  Let's say we hit our FIRE number, is your 401k Solo money stuck until 59 1/2 - I don't know enough of how to have this money to start working for you and taking it.

3) It looks like the Vanguard 401k solo does not allow admiral shares, would you still recommend them or somewhere else?

Thanks for your help, any advice on being Self-Employed to FIRE would be great!

[SilverAg47]

3) It looks like the Vanguard 401k solo does not allow admiral shares, would you still recommend them or somewhere else?

I had a Vanguard Solo 401k for about 5 years.  It was fine, but as you say, they do not allow admiral shares.  I switched last year from them to Fidelity and am glad I made the change.  The expense ratios are better at Fidelity, especially since they lowered them a couple weeks ago.  I'm thinking about moving other funds away from Vanguard over to Fidelity due to this as well.  If you find a Roth option is important to you for your solo 401k, then know that Vanguard has this, but Fidelity does not.  Good luck!

[DavidAnnArbor]

Yes do the solo 401k with Fidelity.

You and your wife as owners of the S-corp can both make contributions to the solo 401k as employees and also receive employer contributions.
Do ask your accountant about that to make sure you are both part of the S-corp.

[BlueHouse]

Yes do the solo 401k with Fidelity.

You and your wife as owners of the S-corp can both make contributions to the solo 401k as employees and also receive employer contributions.
Do ask your accountant about that to make sure you are both part of the S-corp.

As employees of the S-Corp, you can both contribute 18,500 (+6000 if you're over 50) and the S-corp can contribute the rest up to $54,000 ($60,000 if over 50).  That's 128K for both of you.  + 11,000 in your IRAs.  Every year.  You'll reach FI very quickly at that rate. 

I formed an S-corp 8 years ago and I now have almost $1M in my 401k.  It's well worth the extra expense to do it.   

[DavidAnnArbor]

Also the money is not "stuck" in the solo 401k til age 59.

You'll want to set up a Roth ladder so that you can live off that money.

[SeattleCPA]

Yes do the solo 401k with Fidelity.

You and your wife as owners of the S-corp can both make contributions to the solo 401k as employees and also receive employer contributions.
Do ask your accountant about that to make sure you are both part of the S-corp.

As employees of the S-Corp, you can both contribute 18,500 (+6000 if you're over 50) and the S-corp can contribute the rest up to $54,000 ($60,000 if over 50).  That's 128K for both of you.  + 11,000 in your IRAs.  Every year.  You'll reach FI very quickly at that rate. 

I formed an S-corp 8 years ago and I now have almost $1M in my 401k.  It's well worth the extra expense to do it.

To max an individual's 401(k) to $54K or $60K, you need pretty high wages. Friday night scratchpad calculation says you need $142K.

E.g., 25% of $142K equals $35,500... add another $18.5K and you get $54K... or add another $24.5K and you get $60K.

So to max two spouses' 401(k)s, you'd need $142K in wages for both spouses.

[BlueHouse]

Yes do the solo 401k with Fidelity.

You and your wife as owners of the S-corp can both make contributions to the solo 401k as employees and also receive employer contributions.
Do ask your accountant about that to make sure you are both part of the S-corp.

As employees of the S-Corp, you can both contribute 18,500 (+6000 if you're over 50) and the S-corp can contribute the rest up to $54,000 ($60,000 if over 50).  That's 128K for both of you.  + 11,000 in your IRAs.  Every year.  You'll reach FI very quickly at that rate. 

I formed an S-corp 8 years ago and I now have almost $1M in my 401k.  It's well worth the extra expense to do it.

To max an individual's 401(k) to $54K or $60K, you need pretty high wages. Friday night scratchpad calculation says you need $142K.

E.g., 25% of $142K equals $35,500... add another $18.5K and you get $54K... or add another $24.5K and you get $60K.

So to max two spouses' 401(k)s, you'd need $142K in wages for both spouses.

Great point, Seattle CPA.  I always forget about that limit.