Author Topic: Advice for a self-employment investment strategy  (Read 2475 times)

Mustachafello

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Advice for a self-employment investment strategy
« on: October 06, 2012, 04:21:47 PM »
Hi,

I recently got on board with the mustache philosophy, and just read The Permanent Portfolio and Early Retirement Extreme. I have a few questions regarding self-employment strategies for saving and tax deductions.

Here is my current situation:
*Age: 30, single
*Self Employed, LLC, no employees
*Stashing 45-50% of my income starting last month
*This month I set up a Vanguard account and put 5K into a Traditional IRA 2045 and 10K into the 500 Index fund.
*My goal is to be able to pay cash for a house and live off my investments within 10 years.

My question is, would it make more sense to move 10k to an individual 401K for so I can deduct it even though the expense ratio goes from .05% to .20%? Can I actually have both the Traditional IRA and individual 401K together? Does the strategy change if you are trying to retire much earlier than 65? Thanks!

Lars

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Re: Advice for a self-employment investment strategy
« Reply #1 on: October 06, 2012, 09:57:57 PM »
I would recommend 10k in a individual 401k before the index fund. Since you are planning to FI in ten years, you can expect your tax rate to be much lower in retirement. If your tax rate is just 10% lower, it would take more than 50 years for the difference in expense ratios to cancel that out.

You can definitely have a traditional IRA and individual 401k together - they have separate contribution limits and rules.

The primary difference between retiring at 65 and before 60 are the extra hoops you need to go through to get your money out of tax deferred accounts. A quick search of ROTH rollover pipelines and rule 72t on either this forum or more widely will get you more details. I think the extra effort is worth the thousands heavy use of pre-tax accounts can save.

Mustachafello

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Re: Advice for a self-employment investment strategy
« Reply #2 on: October 06, 2012, 10:42:52 PM »
Thanks for the reply. Wouldn't I keep the same index fund in the 401k?

Lars

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Re: Advice for a self-employment investment strategy
« Reply #3 on: October 07, 2012, 01:00:46 PM »
Yes. I wasn't sure what you meant by the difference in expenses ratios but since that did not change the answer to your primary questions I didn't question further.

You may want to check out :
https://personal.vanguard.com/us/SbsCalculatorController
http://www.bogleheads.org/wiki/Principles_of_Tax-Efficient_Fund_Placement

Mustachafello

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Re: Advice for a self-employment investment strategy
« Reply #4 on: October 07, 2012, 03:15:43 PM »
Wow thank you so much. Extremely helpful.