Author Topic: Investment advice needed: solo 401k or non-sheltered index funds.  (Read 2689 times)

Hubbard521

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I have a question for all you seasoned mustachians about strategic investing.

I work two jobs:  a 9-5 in corporate America and as a musician playing paying gigs 3-6 nights a week (many of which pay a measly $20-60 under the table for a night's work).  One major downfall about my day-job is that they do not provide me with a 401k.  I'm wondering whether it would be more beneficial for me to open a solo 401k and put my extra savings from playing music there or if I should just keep it simple and put my extra cash into a non tax-sheltered index fund.

Any advice is greatly appreciated.  Thanks!

twinge

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #1 on: December 16, 2012, 05:09:11 AM »
Are you already doing a traditional/Roth IRA (5K a year)? That would be the first step if not.

Another Reader

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #2 on: December 16, 2012, 05:59:01 AM »
Unless you have a business and are reporting the income, from the IRS' point of view, there is no income to put into a tax deferred account tied to that income.  Max out your IRA, as it's the only tax advantaged plan available to you.

A440

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #3 on: December 16, 2012, 11:43:28 AM »
You will obviously need to report the income to use a solo 401k, but I think it's a fine plan.  I do it with my side income.  I need the deduction now, but if you don't, you could always consider a Roth solo 401k. 

Hubbard521

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #4 on: December 17, 2012, 10:00:32 AM »
Thank you for your responses.  I do have a Roth IRA which I have already been maxing out.  I don't currently report some of the income I make through music (outside of my 9-5) because it's usually very minuscule.  However, I could easily register myself as a business, expand on my side earnings specific to music, and put that money into a solo 401k instead of putting it directly into a non tax-sheltered index fund.  My question is whether or not that extra step is worthwhile or if I should just continue putting my extra change into a non tax-sheltered index.

chucklesmcgee

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #5 on: December 17, 2012, 06:02:39 PM »
If you're ok with not being able to withdraw the money for a while a 401k might be acceptable. Maybe. Your state may require you to pay registration fees for your business and if you're only going to be banking $5k a year and actually aren't reporting that income the benefit is less obvious. Vanguard offers a solo 401k plan on the cheap.

Hubbard521

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Re: Investment advice needed: solo 401k or non-sheltered index funds.
« Reply #6 on: December 18, 2012, 03:21:01 PM »
The price to register a business here is pretty trivial.  I'm struggling to fully understand how profits from a non tax-sheltered index fund are taxed at the point of withdrawal.  If I were to put the money into a solo 401k I wouldn't be taxed on any of the annual fluctuations and fund transactions but rather solely on the income tax once I were to withdraw the money, correct?