Author Topic: Newly Self Employed With Some Questions  (Read 2431 times)

brazos2016

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Newly Self Employed With Some Questions
« on: January 07, 2017, 08:54:23 PM »
Hi, I recently started my own company (last summer) and am hoping some of you could give me some advice on a few things. Thank you in advance for any help!

I am 32 (about to be 33 in April). I worked for a company for the past approximately 8 years and after about 5 years of employment was in a position to put a little money into the retirement account they offered. It was a SIMPLE IRA through Ameriprise. I wasn't able to contribute much over the past 3 years, but the account now has a balance of a little over $20,000 in it. I have probably contributed around $18,000 of that. So the account hasn't done horrible, but not great either. Of the options they provided I could choose I went with the "moderate aggressive" which the guy with Ameriprise seemed to agree was the best for me. So with all of that in mind here's my questions:

First, now that I am self employed (with no employees other than my wife) I am not sure what to do with this account. I did have it switched over to my company now, but have not contributed to it honestly because I wasn't sure of my profits/cash-flow this first year of running my company and wasn't sure it was the best option once I was ready to contribute some money. I do want to contribute to a retirement account regularly. As long as things go like they have recently, I should be able to contribute at least $5,200/year into a retirement account starting this year. Possibly more just depending on how things roll. Would you recommend I contribute to this SIMPLE IRA or start a different account altogether (i.e. Vanguard Traditional IRA)? A 401k doesn't seem very realistic for me due to the costs of it, so an IRA is probably what I should stick with, right? I do like that the SIMPLE IRA allows over $12,000 to be put in it per year, but I just don't know that this account through Ameriprise is going to be very beneficial long term? What would you do in this situation knowing that the max on a traditional IRA of $5,500 will be pretty easy for me to hit each year so anything else would have to go into a taxable account?

Second question is that I would also like to open a taxable account and I planned to just open a Vanguard VTSAX. If I maintain either the SIMPLE IRA or traditional IRA and am able to max those out, would it be best to go with the VTSAX or something else? I would have to go with the investor shares as I wouldn't have $10,000 to start right now.  I'm not sure if buying into bonds right now is a good idea or not?

Lastly, we also had our first child in 2016 and I want to open both a 529 and taxable investment account for him. The 529 will be for family members to contribute to as I don't particularly care to put money into one, but I do want to put money back into a separate taxable account for him. Should I just open another VTSAX account for him but keep it in my name or is there a better avenue for that?

I hope that wasn't too overwhelming! :)

BlueHouse

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Re: Newly Self Employed With Some Questions
« Reply #1 on: January 07, 2017, 09:34:08 PM »
When I started my business, I started a 401k and set it up so that if I did well in the year, I could contribute more than the slow years. That meant a fairly low employer match, but a profit sharing feature at the end of each year for those good years. So far, I've dumped the max in all years (about 50k per year for the past 8 years). This setup gives me flexibility.
It's not terribly expensive to set up. I set mine up through Paychex, but I think in your situation, a vanguard solo. 401k would be ideal.
I don't know what the benefit is of opening up a separate account with no tax-advantage.  I would dump everything you can into tax-advantaged accounts  there are multiple ways to access that money if and when you need or want to.

brazos2016

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Re: Newly Self Employed With Some Questions
« Reply #2 on: January 08, 2017, 12:56:30 PM »
BlueHouse I appreciate the response. I assumed the fees for a solo 401k would be too high to justify, but maybe that isn't the case. I need to research Vanguard's solo 401k a little more, but I also thought you couldn't roll money from an IRA into their solo 401k's at Vanguard for some reason? If that is the case, any suggestions on what I should do with the existing SIMPLE IRA account I have? I can always just let it sit I suppose?

I was thinking a taxable account would allow me easier access to the funds if I absolutely got in a bind and needed them. I definitely planned to do a taxable account for my son so he can access the money when he's in college or after college if needed.

terran

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Re: Newly Self Employed With Some Questions
« Reply #3 on: January 08, 2017, 01:33:18 PM »
Solo 401k's are widely available for free. It's when you have employees that 401k plans start to become expensive.

You're right that vanguard's solo 401k does not allow rollovers. Fidelity's does, though, so that might be a good option for you.

With This Herring

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Re: Newly Self Employed With Some Questions
« Reply #4 on: January 08, 2017, 03:02:29 PM »
Just curious, do you know what Ameriprise is charging you in fees?  Both account maintenance fees that show up on your statements plus fund expense ratios that don't appear on your statement?  Usually, people recommend Vanguard, Fidelity, and Schwab around here.  Other brokerages tend to have high expense ratios and fees.  You may be best suited rolling that SIMPLE IRA to a Vanguard traditional IRA as soon as the two-year waiting period (from when your SIMPLE IRA was opened and contributions started) has passed (if it has not already done so).  (You could roll the Ameriprise SIMPLE IRA to a Vanguard SIMPLE IRA right now without consequences.)
IRS Rollover Chart
IRS SIMPLE IRA Rollover Rules
IRS Publication 560: Two-Year Rule

Terran, is it just Vanguard's 401(k)s that don't accept rollovers, or is rolling a SIMPLE IRA the issue?

You can either use that Vanguard traditional IRA to make more contributions or open at Vanguard a Solo 401(k) as suggested by others.

webguy

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Re: Newly Self Employed With Some Questions
« Reply #5 on: January 09, 2017, 08:23:23 AM »
Vanguard's Solo 401k is completely free, but just takes some paperwork to set up.  The best thing about the Solo 401k is that as a business owner it allows you to contribute the most to it of all the retirement plan options. If you're not going to be getting close to contributing the $53k max per year then maybe look into a SEP-IRA instead. It's much simpler to set up: https://investor.vanguard.com/what-we-offer/small-business/sep?WT.srch=1&cmpgn=PS:RE

Here's a breakdown of the Vanguard retirement plan options for small businesses: https://investor.vanguard.com/what-we-offer/small-business/compare-plans?Link=facet

They have a handy calculator here: https://personal.vanguard.com/us/SbsCalculatorController where you can enter your estimated business income and it'll show you how much you can contribute to each plan.

Regarding rolling over your SIMPLE IRA, I'd just call Vanguard and ask them your options. You may be able to just roll it over into a Traditional IRA there.

terran

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Re: Newly Self Employed With Some Questions
« Reply #6 on: January 09, 2017, 08:35:42 AM »
Terran, is it just Vanguard's 401(k)s that don't accept rollovers, or is rolling a SIMPLE IRA the issue?

Everything I have seen indicates that they don't accept rollovers from any kind of IRA, not sure about rollovers from another 401k, but I would check with them before counting on it.

I went with fidelity because I like the idea that I could roll my IRA into it if we ever end up at an income level where we need to do a backdoor roth (and therefore don't want a traditional IRA around to mess that up), and they also allow access to all fidelity share classes, while vanguard only allows access to the more expensive vanguard investor class shares.

webguy

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Re: Newly Self Employed With Some Questions
« Reply #7 on: January 09, 2017, 11:25:23 AM »
Everything I have seen indicates that they don't accept rollovers from any kind of IRA, not sure about rollovers from another 401k, but I would check with them before counting on it.

Not sure where you heard that. You can rollover both IRAs and 401ks into Vanguard:

IRAs: https://investor.vanguard.com/account-transfer/transfer-ira
401ks/403bs: https://investor.vanguard.com/investing/rollover-iras-transfers

BlueHouse

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Re: Newly Self Employed With Some Questions
« Reply #8 on: January 09, 2017, 11:40:34 AM »
Everything I have seen indicates that they don't accept rollovers from any kind of IRA, not sure about rollovers from another 401k, but I would check with them before counting on it.

Not sure where you heard that. You can rollover both IRAs and 401ks into Vanguard:

IRAs: https://investor.vanguard.com/account-transfer/transfer-ira
401ks/403bs: https://investor.vanguard.com/investing/rollover-iras-transfers
I was not able to roll over an IRA into a 401K that was held at Vanguard - agree with previous poster -- check Fidelity to see if you can do it. 
@webguy, I think you're seeing the opposite -- rolling an external 401k into a vanguard IRA is no problem, but the reverse (rolling an IRA into a 401K)is a problem at VG. 

letired

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Re: Newly Self Employed With Some Questions
« Reply #9 on: January 09, 2017, 11:49:34 AM »
Everything I have seen indicates that they don't accept rollovers from any kind of IRA, not sure about rollovers from another 401k, but I would check with them before counting on it.

Not sure where you heard that. You can rollover both IRAs and 401ks into Vanguard:

IRAs: https://investor.vanguard.com/account-transfer/transfer-ira
401ks/403bs: https://investor.vanguard.com/investing/rollover-iras-transfers

Those links refers to rollover IRA accounts. For Individual aka solo 401k accounts, many folks report that Vanguard limits at least IRA rollovers into the 401k.

http://www.obliviousinvestor.com/our-solo-401k-with-vanguard/
https://thefinancebuff.com/vanguard-solo-401k-rollover-from-ira.html
http://thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/