Author Topic: What To Do With ~30K in Self-Employed "New Money"?  (Read 2353 times)

livinglife

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What To Do With ~30K in Self-Employed "New Money"?
« on: September 26, 2014, 01:43:32 PM »
I have just recently started my own business as family child care provider (I do daycare in my home).  I’ve got the families and the checks are starting to come in.  Now I need guidance with what to do with the money.

Our current retirement contributions look pretty sad:
- Husband’s 401k – $3,600 annually (no company match offered)
- Husband’s Roth IRA – currently maxed
- I was a teacher for a number of years then made the decision to stay home when we had kids.  I have some money sitting in a 403B account from my teaching days, but no 401k or IRA to speak of.

As we already know we can live happily on my husband’s income alone, our current plan is to take all my earnings (minus what we’ll need for taxes and business expenses) and dump it straight into a retirement vehicle.  We estimate that’ll be between 27-29k annually of new retirement money (expenses and taxes already considered).

What should we do with this 27-29K? 

Can I open a one-participant 401k plan?  If so, how do I do that?  Can I contribute over the $17,500  if my ‘business’ contributes as well?  I have no employees.

We have 100,000 left on our mortgage, which based on our current rate of pay, we anticipate will be paid off in 7 years. 

Apart from the possible addition of another child, we don’t anticipate any significant expenses in our future. 

Thank you for any and all help! 

GizmoTX

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Re: What To Do With ~30K in Self-Employed "New Money"?
« Reply #1 on: September 26, 2014, 02:27:44 PM »
Make sure you deposit your earnings into a separate business checking account, not your personal/home account.
Keep track of all your business related expenses; you'll need this for your tax return, either a Schedule C or Sub-S return if you incorporate.
Track & pay your Estimated tax quarterly.
The investment vehicle you want for your business is a SEP-IRA. You can contribute the lesser of 25% of total compensation or $52,000 (2014). Vanguard can handle this for you.

Cheddar Stacker

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Re: What To Do With ~30K in Self-Employed "New Money"?
« Reply #2 on: September 26, 2014, 02:38:18 PM »
SEP IRA is good, but solo 401K might be better. Gizmo is correct about the SEP rules, and they are good. I'm not 100% certain the solo 401K rules, but they are closer to what you outlined here:

Can I open a one-participant 401k plan?  If so, how do I do that?  Can I contribute over the $17,500  if my ‘business’ contributes as well?  I have no employees.

I believe you can do the $17,500 plus an employer contribution. This is much better than the 20-25% limit on the SEP.

livinglife

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Re: What To Do With ~30K in Self-Employed "New Money"?
« Reply #3 on: September 26, 2014, 04:35:15 PM »
I do have a separate business account that the money is going into and so far I've done a very thorough job tracking all expenses and keeping receipts organized.  The business is an LLC, if that matters at all. 

After reading Gizmo's post earlier, I checked out Vanguard plan contribution calculator, plugged in my numbers, and came up with this:
SEP-IRA                  $5018
PSP-Keogh              $5018
Simple IRA           $12,748
Individual 401k     $21,296

Assuming I have 28k annually to squirrel away, I could fully fund the 401k and would still have money leftover. 

Best to send the remaining over to my husband's 401k or do one of the other plans mentioned by Vanguard?  I've never heard of a Keogh, not even sure what it is, but I'd imagine many of you mustachians out there know it well. 
« Last Edit: September 26, 2014, 05:34:32 PM by livinglife »