Author Topic: Recovering after shooting myself in the foot...  (Read 12094 times)

Nutso

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Recovering after shooting myself in the foot...
« on: May 16, 2015, 02:24:58 PM »
Background
I'm a 35 y/o IT professional looking to get out of IT industry. I was laid off from my job back in 2013, and I've been through random odd jobs since then. Now I have two jobs here in Bay Area, Cali. I work for the State as IT pro (salary) and Business Account Executive for a small company (hourly). I'm hoping to make a transition to the small company and make it a salary position as I am done with IT industry.

Now I'm sure that you're confused about the subject, in my previous job, I was making bank and I tried to get ahead in saving for retirement by investing in IRA Roth and 401K Roth. But after reading http://www.gocurrycracker.com/turbocharge-savings/ I just did the opposite whereas I should have went with Traditional IRA/401k. D'ooooh!

So I'm asking for advice on what can I do now from this point forward.

Asset Overview
  • No Debt
  • Currently sleeping in my car. Yes I'm that frugal. :-)
  • State job - $5,047 monthly - $3,595 after taxes
  • Hourly job - $20 an hour - $2,800ish after taxes monthly
  • Liquid (Checking/Savings): $15K
  • Fidelity 401K Roth: $128K - stopped contributing since I got laid off
  • Vanguard Roth IRA: $74.1K - Still contributing
Total: $217K approx.

Investment Overview
  • Fidelity 401K Roth: 100% in Janus Balanced Fund Class N (JABNX)
  • Vanguard Roth IRA: 100% in Vanguard Target Retirement 2045 Fund (VTIVX)

Questions
  • Change up my investing or just keep what I'm doing as I'm already in it deep?
  • If keep doing it, what's my 401k alternatives? (the small company's benefits is crappy so need an alternative anyway)
  • Leave my 401K Roth alone or roll it over to somewhere else?
  • What to do when I'm between jobs? I usually find a way of getting income. Keep investing or just hold off?
  • Any other tips/advice?  My primary goal is to make sure that my ass is covered for retirement despite unpredictable future on jobs.

Let me know if you have questions or need me to clarify more. I look forward to hearing your advice!
« Last Edit: May 16, 2015, 03:46:00 PM by Nutso »

MDM

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Re: Recovering after shooting myself in the foot...
« Reply #1 on: May 16, 2015, 02:38:40 PM »
I should have went with Traditional Roth/401k.  I am still contributing to IRA Roth though.
Given the first sentence (modified based on what I think you mean), why the second sentence?

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #2 on: May 16, 2015, 02:54:30 PM »
I should have went with Traditional Roth/401k.  I am still contributing to IRA Roth though.
Given the first sentence (modified based on what I think you mean), why the second sentence?

Oopsie. I meant Traditional IRA/401k.

Post has been edited.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #3 on: May 16, 2015, 03:09:54 PM »
You can start contributing to a traditional 401k right? You have to keep the Roth balance, but most employers let you decide how much to contribute to traditional and Roth. Given your ~105k income I would think you would want to have your contributions go to a traditional 401k at this point.

Is your side gig as an employee or an independent contractor?

I don't love the Janus fund, but it's OK. I don't know if you have any other options.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #4 on: May 16, 2015, 03:45:24 PM »
You can start contributing to a traditional 401k right? You have to keep the Roth balance, but most employers let you decide how much to contribute to traditional and Roth. Given your ~105k income I would think you would want to have your contributions go to a traditional 401k at this point.

Is your side gig as an employee or an independent contractor?

I don't love the Janus fund, but it's OK. I don't know if you have any other options.

Okay, there seems to be some confusion. I'm not contributing to my 401k Roth anymore because I got laid off from that company in 2013. It's just sitting there. The HR rep did suggested that I move it out. Should I?

Since I work for the State of California, they automatically take out 7.5% or $360 out of every paycheck. I do not have any control in this.

My side gig is as an independent contractor.

MDM

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Re: Recovering after shooting myself in the foot...
« Reply #5 on: May 16, 2015, 04:50:07 PM »
I'm not contributing to my 401k Roth anymore because I got laid off from that company in 2013. It's just sitting there. The HR rep did suggested that I move it out. Should I?
If you have access to institutional fund pricing (i.e., even lower fees than Vanguard Admiral)  in that 401k in the asset categories of interest to you, then no.  Otherwise yes.

Quote
Since I work for the State of California, they automatically take out 7.5% or $360 out of every paycheck. I do not have any control in this.
For those of us unfamiliar with the California plan, what is this?  E.g., where does this go?  When can you get it back?  Does it count against your $18K/yr 401k/403b personal limit?  ...?

Quote
My side gig is as an independent contractor.
Have you explored self-employed 401k options?

In general, see http://forum.mrmoneymustache.com/ask-a-mustachian/how-to-write-a-%27case-study%27-topic/ for some details often needed to get specific responses.  Generic advice is "save as much as you can, invest it in index funds held first in tax advantaged accounts (trad or Roth depending on current vs. future marginal tax bracket), and taxable accounts after that."

Indio

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Re: Recovering after shooting myself in the foot...
« Reply #6 on: May 16, 2015, 05:43:47 PM »
You can start contributing to a traditional 401k right? You have to keep the Roth balance, but most employers let you decide how much to contribute to traditional and Roth. Given your ~105k income I would think you would want to have your contributions go to a traditional 401k at this point.

Is your side gig as an employee or an independent contractor?

I don't love the Janus fund, but it's OK. I don't know if you have any other options.

Okay, there seems to be some confusion. I'm not contributing to my 401k Roth anymore because I got laid off from that company in 2013. It's just sitting there. The HR rep did suggested that I move it out. Should I?

Since I work for the State of California, they automatically take out 7.5% or $360 out of every paycheck. I do not have any control in this.

My side gig is as an independent contractor.

Moving the 401k out of Fidelity is highly dependent upon the investment options you have available to choose from. My plan has access to institutional Vanguard funds, with low expense ratios, that perform slightly better than the vtsmx, and the other non-institutional vanguard funds.
Evaluate the investment options and fees before you considering moving it.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #7 on: May 16, 2015, 05:47:51 PM »
You can start contributing to a traditional 401k right? You have to keep the Roth balance, but most employers let you decide how much to contribute to traditional and Roth. Given your ~105k income I would think you would want to have your contributions go to a traditional 401k at this point.

Is your side gig as an employee or an independent contractor?

I don't love the Janus fund, but it's OK. I don't know if you have any other options.

Okay, there seems to be some confusion. I'm not contributing to my 401k Roth anymore because I got laid off from that company in 2013. It's just sitting there. The HR rep did suggested that I move it out. Should I?

Since I work for the State of California, they automatically take out 7.5% or $360 out of every paycheck. I do not have any control in this.

My side gig is as an independent contractor.

Score and double score! If your expense ratios are more than 0.1%, definitely roll the 401k Roth into a Vanguard Roth IRA. It looks like your ratios might be 0.6%, which is pretty high. I would roll it over pronto.

Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #8 on: May 16, 2015, 06:42:54 PM »
Quote
For those of us unfamiliar with the California plan, what is this?  E.g., where does this go?  When can you get it back?  Does it count against your $18K/yr 401k/403b personal limit?  ...?

Due to my position with the State of California, it's considered "Civil Service Limited Term" meaning I have certain access to their Calpers Benefits. I'm still confused on how this works. This money goes to Part-time, Seasonal, and Temporay (PST) Retirement Plan. I am not planning to stay here long term.

Quote
Score and double score! If your expense ratios are more than 0.1%, definitely roll the 401k Roth into a Vanguard Roth IRA. It looks like your ratios might be 0.6%, which is pretty high. I would roll it over pronto.
You were right about the expense ratios for my 401k. It's .58%

These are the funds that I'm able to have access to via Fidelity. The percentages are the expense ratios.

Quote
Stock Investment - Company Stock
Raytheon Stock Fund - .006%

Stock Investment - Large Cap Blend
NT S&P 500 Index - .015%

VANG IS TL STK MK IP (VITPX) - .02%

Stock Investment - Small Cap Growth
TRP IN ST SM CAP STK (TRSSX) - .67%

Stock Investment - Small Cap Blend
NT RUSSELL 2000 INDX - .03%

Stock Investment - World
HARRIS OAKMRK GLOBAL - .8%

Stock Investment - Foreign
NT ACWI EX-US IDX DC - .065%

Stock Investment - Diversfd Emerging Mkts
OPP DEVELOPING MKT I (ODVIX) - .87%

Stock Investment - Speciality
VANG REIT IDX IN ST (VGSNX) - .08%

Blended Fund Investments - Asset Allocation
GROWTH ALLOC INDEX - .03%
INCOME ALLOC INDEX - .03%

Bond/Managed Income - Intermediate-Term
NT AGGREG BOND INDEX - .03%
PIM TOTAL RT INST (PTTRX) - .46%

Bond/Mangaed Income - Stable Value
FIXED INCOME FUND - .33%

Bond/Managed Income - Asset Allocation
PIF DVRSD REAL AST I (PDRDX) - .86%

Short-Term Investment
FIMM GOVT PORT IN ST (FRGXX) - .18%

Other Investments
BROKERAGELINK
See any that you like? I don't mind getting some Raytheon Stocks. Or Just move everything to my existing Roth IRA account pronto?

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #9 on: May 16, 2015, 06:49:59 PM »
Quote
Score and double score! If your expense ratios are more than 0.1%, definitely roll the 401k Roth into a Vanguard Roth IRA. It looks like your ratios might be 0.6%, which is pretty high. I would roll it over pronto.
You were right about the expense ratios for my 401k. It's .58%

These are the funds that I'm able to have access to via Fidelity. The percentages are the expense ratios.

See any that you like? I don't mind getting some Raytheon Stocks. Or Just move everything to my existing Roth IRA account pronto?

VITPX is a great option. It's the Vanguard total US stock market with a very low expense ratio. I would not buy individual stocks (like Raytheon).

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

No, if you have the account at Vanguard, it stays at Vanguard as long as you keep it there. Whatever money you put in it stays in it and continues to grow in a tax advantaged manner. And you get to deduct all contributions from your income taxes in the year you make them. It's like a super 401k because you get a great choice of low-cost funds and you can contribute more to it than people like me who have a salary job.

MDM

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Re: Recovering after shooting myself in the foot...
« Reply #10 on: May 16, 2015, 06:58:38 PM »
Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

Depends on how you define "worthless".

From http://www.irs.gov/Retirement-Plans/One-Participant-401%28k%29-Plans:

Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

    Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
        $17,500 in 2014 and $18,000 in 2015, or $23,000 in 2014 and $24,000 in 2015 if age 50 or over; plus
    Employer nonelective contributions up to:
        25% of compensation as defined by the plan, or
        for self-employed individuals, see discussion below

If you’ve exceeded the limit for elective deferrals in your 401(k) plan, find out how to correct this mistake.

Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $52,000 for 2014 and $53,000 for 2015.
...
A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #11 on: May 16, 2015, 07:04:22 PM »
First of all, thank you for all your feedbacks Forummm. I really do appreciate you taking the time to help out.

Quote
Score and double score! If your expense ratios are more than 0.1%, definitely roll the 401k Roth into a Vanguard Roth IRA. It looks like your ratios might be 0.6%, which is pretty high. I would roll it over pronto.
You were right about the expense ratios for my 401k. It's .58%

These are the funds that I'm able to have access to via Fidelity. The percentages are the expense ratios.

See any that you like? I don't mind getting some Raytheon Stocks. Or Just move everything to my existing Roth IRA account pronto?

VITPX is a great option. It's the Vanguard total US stock market with a very low expense ratio. I would not buy individual stocks (like Raytheon).

Okay, so move it all to Fidelity's VITPX from Janus? Then forget about it? I won't be able to contribute to it anymore right?

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

No, if you have the account at Vanguard, it stays at Vanguard as long as you keep it there. Whatever money you put in it stays in it and continues to grow in a tax advantaged manner. And you get to deduct all contributions from your income taxes in the year you make them. It's like a super 401k because you get a great choice of low-cost funds and you can contribute more to it than people like me who have a salary job.

Uhhh...I'm still confused. Why can't you contribute to "Super 401k" too?
« Last Edit: May 16, 2015, 07:10:02 PM by Nutso »

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #12 on: May 16, 2015, 07:06:49 PM »
Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

Depends on how you define "worthless".

From http://www.irs.gov/Retirement-Plans/One-Participant-401%28k%29-Plans:

Contribution limits in a one-participant 401(k) plan

The business owner wears two hats in a 401(k) plan: employee and employer. Contributions can be made to the plan in both capacities. The owner can contribute both:

    Elective deferrals up to 100% of compensation (“earned income” in the case of a self-employed individual) up to the annual contribution limit:
        $17,500 in 2014 and $18,000 in 2015, or $23,000 in 2014 and $24,000 in 2015 if age 50 or over; plus
    Employer nonelective contributions up to:
        25% of compensation as defined by the plan, or
        for self-employed individuals, see discussion below

If you’ve exceeded the limit for elective deferrals in your 401(k) plan, find out how to correct this mistake.

Total contributions to a participant’s account, not counting catch-up contributions for those age 50 and over, cannot exceed $52,000 for 2014 and $53,000 for 2015.
...
A business owner who is also employed by a second company and participating in its 401(k) plan should bear in mind that his limits on elective deferrals are by person, not by plan. He must consider the limit for all elective deferrals he makes during a year.

Okay, this would make sense for an independent contractor. However my hourly job might turn into a salaried position with the company within 3-6 months. I will then become an employee, not a contractor anymore.

This changes everything right?

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #13 on: May 16, 2015, 07:19:24 PM »
Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

Depends on how you define "worthless".


How are you defining worthless? The IRS content you posted is what I was describing to you.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #14 on: May 16, 2015, 07:25:23 PM »
First of all, thank you for all your feedbacks Forummm. I really do appreciate you taking the time to help out.

Okay, so move it all to Fidelity's VITPX from Janus? Then forget about it? I won't be able to contribute to it anymore right?

That's what I would do. It's a much cheaper fund. And you won't be able to contribute to that 401k anymore if you no longer have the job that lets you contribute to it. It sounds like you don't have that job anymore. So the money can stay there and continue to grow, which is great. But you just don't add more to that particular account. You can add to other accounts instead.

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

I have thought about self-employed/solo 401k options but aren't these worthless if I take on a salary position with a company (employee)?

No, if you have the account at Vanguard, it stays at Vanguard as long as you keep it there. Whatever money you put in it stays in it and continues to grow in a tax advantaged manner. And you get to deduct all contributions from your income taxes in the year you make them. It's like a super 401k because you get a great choice of low-cost funds and you can contribute more to it than people like me who have a salary job.

Uhhh...I'm still confused. Why can't you contribute to "Super 401k" too?

I'm not sure what you're confused about. If you articulate what you don't understand, maybe that will help.

While you are working as a self-employed contractor you can contribute to a solo 401k (also called an individual 401k). I called it a super 401k. It's the same thing. If you stop being self employed and get a salaried job, you can then contribute to your new employer's 401k as well (if they have one). You are just limited to $18k in total contributions between the 2 plans, but you can also contribute an additional ~18% of your self-employment income as described above.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #15 on: May 16, 2015, 07:27:07 PM »
Okay, this would make sense for an independent contractor. However my hourly job might turn into a salaried position with the company within 3-6 months. I will then become an employee, not a contractor anymore.

This changes everything right?

You can contribute to a solo 401k now. If you get a salaried job, then you will be limited to $18k in total contributions as mentioned above, plus the ~18% of your self-employment income on top of that.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #16 on: May 16, 2015, 08:15:24 PM »
Depends on how you define "worthless".

How are you defining worthless? The IRS content you posted is what I was describing to you.

That wasn't from me. It was from MDM. :-) I thought that I don't qualify for a solo 401k if I was an employee for a company. Seems that I can now.

That's what I would do. It's a much cheaper fund. And you won't be able to contribute to that 401k anymore if you no longer have the job that lets you contribute to it. It sounds like you don't have that job anymore. So the money can stay there and continue to grow, which is great. But you just don't add more to that particular account. You can add to other accounts instead.

That sounds good to me. I assumed that it might be a better option if I moved it all to my existing Vanguard IRA Roth account or open a Vanguard's Super 401K account and move it there. Too complicated?

No, if you have the account at Vanguard, it stays at Vanguard as long as you keep it there. Whatever money you put in it stays in it and continues to grow in a tax advantaged manner. And you get to deduct all contributions from your income taxes in the year you make them. It's like a super 401k because you get a great choice of low-cost funds and you can contribute more to it than people like me who have a salary job.

Uhhh...I'm still confused. Why can't you contribute to "Super 401k" too?

I'm not sure what you're confused about. If you articulate what you don't understand, maybe that will help.

While you are working as a self-employed contractor you can contribute to a solo 401k (also called an individual 401k). I called it a super 401k. It's the same thing. If you stop being self employed and get a salaried job, you can then contribute to your new employer's 401k as well (if they have one). You are just limited to $18k in total contributions between the 2 plans, but you can also contribute an additional ~18% of your self-employment income as described above.

You're saying that by having a Super 401k, we have more and better options than salaried people. I'm just wondering why you don't contribute to Super 401k too?

To double check - once I get a salaried job, I still can contribute to Super 401K right? Only up to $18k though.

iamlindoro

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Re: Recovering after shooting myself in the foot...
« Reply #17 on: May 16, 2015, 09:36:38 PM »
I'm not sure what you're confused about. If you articulate what you don't understand, maybe that will help.

While you are working as a self-employed contractor you can contribute to a solo 401k (also called an individual 401k). I called it a super 401k. It's the same thing. If you stop being self employed and get a salaried job, you can then contribute to your new employer's 401k as well (if they have one). You are just limited to $18k in total contributions between the 2 plans, but you can also contribute an additional ~18% of your self-employment income as described above.

You're saying that by having a Super 401k, we have more and better options than salaried people. I'm just wondering why you don't contribute to Super 401k too?

To double check - once I get a salaried job, I still can contribute to Super 401K right? Only up to $18k though.

To clarify, the account is not called a Super 401k.  Forummm said it's *like* a "super" 401k as a means of explaining that it is supercharged compared to a 401k.  Don't call it a Super 401k because nobody will have any idea what you're talking about.  It's a Solo or Individual 401k.

Forummm does not contribute to one because he is not self employed. 

You must have self-employment income (and a teensy bit of structure, you need an EIN from the government, which takes 5 minutes, and some sort of company structure, even if it's just a fictitious business name filing, which might cost you 30-40 bucks to get done through your local county) to open one.  The amount you can contribute in a given year depends on a formula.  I won't go into it here since you are still working on understanding the basics, but suffice to say you cannot simply open one and then dump 53K in.  You need to actually make a reasonable amount of money through self employment, but as long as that amount is > 18K, you will be able to tax-shelter more than you could through a corporate 401k.

Edit to add: Forummm has actually already detailed the calculation above, so you can refer to that with one slight correction- the amount the "employer" (still you) can contribute to the Solo 401k is 25% of the profits after taxes rather than 20%.  Bankrate has a pretty decent calculator to let you figure out how much you could contribute based on company structure and income:

http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx
« Last Edit: May 16, 2015, 09:44:45 PM by iamlindoro »

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #18 on: May 17, 2015, 06:37:25 AM »
Edit to add: Forummm has actually already detailed the calculation above, so you can refer to that with one slight correction- the amount the "employer" (still you) can contribute to the Solo 401k is 25% of the profits after taxes rather than 20%.  Bankrate has a pretty decent calculator to let you figure out how much you could contribute based on company structure and income:

http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

I know it says 25%, but if you don't have a corporation, once you do the actual calculations, it ends up being around 18%. The actual amount you can contribute as employer is a ratio and has SE tax deducted from it. But let's not get into that here.

iamlindoro

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Re: Recovering after shooting myself in the foot...
« Reply #19 on: May 17, 2015, 07:52:25 AM »
Edit to add: Forummm has actually already detailed the calculation above, so you can refer to that with one slight correction- the amount the "employer" (still you) can contribute to the Solo 401k is 25% of the profits after taxes rather than 20%.  Bankrate has a pretty decent calculator to let you figure out how much you could contribute based on company structure and income:

http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

I know it says 25%, but if you don't have a corporation, once you do the actual calculations, it ends up being around 18%. The actual amount you can contribute as employer is a ratio and has SE tax deducted from it. But let's not get into that here.

That may be so, but I was referring to this post:

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #20 on: May 17, 2015, 08:54:23 AM »
Edit to add: Forummm has actually already detailed the calculation above, so you can refer to that with one slight correction- the amount the "employer" (still you) can contribute to the Solo 401k is 25% of the profits after taxes rather than 20%.  Bankrate has a pretty decent calculator to let you figure out how much you could contribute based on company structure and income:

http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

I know it says 25%, but if you don't have a corporation, once you do the actual calculations, it ends up being around 18%. The actual amount you can contribute as employer is a ratio and has SE tax deducted from it. But let's not get into that here.

That may be so, but I was referring to this post:

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

Me too:

http://www.irs.gov/Retirement-Plans/Self-Employed-Individuals-Calculating-Your-Own-Retirement-Plan-Contribution-and-Deduction

If you scroll down to the example and replace the numbers:
1 Taking the plan contribution rate 25%
2 Dividing the plan contribution rate by 100% + plan contribution rate   25%/125%
3 To get the reduced plan contribution rate 20%

Then plug in (assuming $100k profit)
1       $100,000   Schedule C net profit
2   -   $7,065   ˝ SE tax deduction ($14,130 x ˝)
3   =   $92,935   Net profit reduced by ˝ SE tax
4   x   20%   Joe’s reduced plan contribution rate
5   =   $18,587   Joe’s allowed contribution and deduction

Which is ~18% (as mentioned several times above).

If you're incorporated, the amount is different.
« Last Edit: May 17, 2015, 09:06:55 AM by forummm »

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #21 on: May 17, 2015, 11:09:26 AM »
Whooo, a lot information about the "Super 401K" option. Boy, I'm really learning a lot.

To clarify, the account is not called a Super 401k.  Forummm said it's *like* a "super" 401k as a means of explaining that it is supercharged compared to a 401k.  Don't call it a Super 401k because nobody will have any idea what you're talking about.  It's a Solo or Individual 401k.

Iamlindoro, I am aware that this "Super 401K" is just a fancy name for the individual/solo 401k, but I hear you so I'll refrain from using "Super 401K" so it wouldn't be any more confusions to people reading this thread.

Thank you for explaining more in depth about it though, Iamlindoro. I now have a better idea of how it works. It pretty much confirmed my suspicions. After double-checking with my boss from the small company, they listed me down as an employee so I do not qualify for the Solo 401k option as I"m not an independent contractor. I apologize for the miscommunication. That's on me.

Now the Solo 401k is not an option for me, what are my other options? I'd like this account to be where I can contribute to regardless of my status in job market.

That's what I would do. It's a much cheaper fund. And you won't be able to contribute to that 401k anymore if you no longer have the job that lets you contribute to it. It sounds like you don't have that job anymore. So the money can stay there and continue to grow, which is great. But you just don't add more to that particular account. You can add to other accounts instead.

Should I go ahead and roll over my 401k Roth to my existing Vanguard's IRA Roth account or just leave it at Fidelity?
« Last Edit: May 17, 2015, 11:11:52 AM by Nutso »

iamlindoro

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Re: Recovering after shooting myself in the foot...
« Reply #22 on: May 17, 2015, 02:31:30 PM »
That may be so, but I was referring to this post:

Quote
Vanguard also offers a solo 401k. You can contribute $18k per year to it ($18k total among all 401k's you have), but you can also contribute 20% of your self employment income (after subtracting your self employment tax--so around 18% total) on top of that, up to $53k per year. So if your independent contractor job pays you $40k, you can contribute around $18k+$7k to it for the year, in addition to your IRA.

Me too:

http://www.irs.gov/Retirement-Plans/Self-Employed-Individuals-Calculating-Your-Own-Retirement-Plan-Contribution-and-Deduction

If you scroll down to the example and replace the numbers:
1 Taking the plan contribution rate 25%
2 Dividing the plan contribution rate by 100% + plan contribution rate   25%/125%
3 To get the reduced plan contribution rate 20%

Then plug in (assuming $100k profit)
1       $100,000   Schedule C net profit
2   -   $7,065   ˝ SE tax deduction ($14,130 x ˝)
3   =   $92,935   Net profit reduced by ˝ SE tax
4   x   20%   Joe’s reduced plan contribution rate
5   =   $18,587   Joe’s allowed contribution and deduction

Which is ~18% (as mentioned several times above).

If you're incorporated, the amount is different.

Sigh.  Look, we're getting a little far afield here, but what you wrote which I quoted specifically said that it's "20% of your self employment income on top of that" (where the "that" is the employee contribution of 18K) which is wrong both as a generalization and in specifics.  I'm a sole proprietor and my employer contribution limit is almost exactly 19% of net income even if I interpret it the way you want the OP to. 

I just don't think it's useful to throw around 18% (nor 20%) as a number because it's neither accurate nor a number that is relevant to the self employed 401k calculation.  18% doesn't even come into it.  It's not a good generalization and is more likely to hurt someone who is struggling to understand the concepts than it is to help them.

Anyway, we're arguing about nothing since the OP isn't even self employed, as we're learning.  Not being able to say with confidence what the nature of your employment is is a much more fundamental lack of understanding. ;)
« Last Edit: May 17, 2015, 02:43:21 PM by iamlindoro »

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #23 on: May 17, 2015, 02:57:38 PM »
Fair enough. I used too much abstraction for your tastes when trying to explain too complicated a concept to a beginner. And then I used too much detail and too little abstraction. I guess that's what you get from free advice from amateurs. Hopefully they helped the OP.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #24 on: May 17, 2015, 07:18:59 PM »
Umm...glad to see that we're on the same page now.

So back to my questions:

Now the Solo 401k is not an option for me, what are my other options? I'd like this account to be where I can contribute to regardless of my status in job market.

and

That's what I would do. It's a much cheaper fund. And you won't be able to contribute to that 401k anymore if you no longer have the job that lets you contribute to it. It sounds like you don't have that job anymore. So the money can stay there and continue to grow, which is great. But you just don't add more to that particular account. You can add to other accounts instead.

Should I go ahead and roll over my 401k Roth to my existing Vanguard's IRA Roth account or just leave it at Fidelity?

iamlindoro

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Re: Recovering after shooting myself in the foot...
« Reply #25 on: May 17, 2015, 08:01:53 PM »
Umm...glad to see that we're on the same page now.

So back to my questions:

Now the Solo 401k is not an option for me, what are my other options? I'd like this account to be where I can contribute to regardless of my status in job market.

Bear in mind that you are on a discussion forum, not an answers-on-demand service.  Sometimes a question spurs discussion, sometimes it ranges over a variety of topics.  This service is worth every penny you are paying for it.

If you insist that the retirement account be something you can contribute to regardless of your status in the job market, then there is really no such thing, absolutely speaking.  Only a taxable, non-retirement account can be contributed to without regard to your employment status.  All retirement accounts have limitations on employment type, income level, etc.  Given your present employment status, your best options have already been discussed.  401k, then IRA or Roth IRA depending on your circumstances and goals.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #26 on: May 17, 2015, 08:36:25 PM »
Bear in mind that you are on a discussion forum, not an answers-on-demand service.  Sometimes a question spurs discussion, sometimes it ranges over a variety of topics.  This service is worth every penny you are paying for it.

Understood, and I apologize if I came across that way. It wasn't my intention.

If you insist that the retirement account be something you can contribute to regardless of your status in the job market, then there is really no such thing, absolutely speaking.  Only a taxable, non-retirement account can be contributed to without regard to your employment status.  All retirement accounts have limitations on employment type, income level, etc.  Given your present employment status, your best options have already been discussed.  401k, then IRA or Roth IRA depending on your circumstances and goals.

That's the thing, I can't contribute to 401k because I work for the State of California. They have their own retirement plan (https://www.calpers.ca.gov/index.jsp?bc=/about/benefits-overview/retirement/retirement-benefits.xml) for all state employees which they take out at least 7.5% of every employee's paychecks. My position is a limited term - only good for 6 months. I started this job back in January 2015. While I got the word that they want to renew my position, I do not want to stay here long term.

As for my other job with small company, because I'm paid hourly, I'm not qualified to get benefits from them. So that's why I was asking what was the best alternative. I thought it was Traditional IRA and Roth IRA.

But it looks like the best way to go for now is to contribute to my IRA Roth and Savings. Then once I get benefits from the small company, I'll sign up for their 401k. Correct me if I'm wrong.

I do appreciate everyone's feedback on this thread, and I thank them for taking their time to comment.
« Last Edit: May 17, 2015, 08:42:12 PM by Nutso »

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #27 on: May 18, 2015, 08:21:56 AM »
Bear in mind that you are on a discussion forum, not an answers-on-demand service.  Sometimes a question spurs discussion, sometimes it ranges over a variety of topics.  This service is worth every penny you are paying for it.

Understood, and I apologize if I came across that way. It wasn't my intention.

If you insist that the retirement account be something you can contribute to regardless of your status in the job market, then there is really no such thing, absolutely speaking.  Only a taxable, non-retirement account can be contributed to without regard to your employment status.  All retirement accounts have limitations on employment type, income level, etc.  Given your present employment status, your best options have already been discussed.  401k, then IRA or Roth IRA depending on your circumstances and goals.

That's the thing, I can't contribute to 401k because I work for the State of California. They have their own retirement plan (https://www.calpers.ca.gov/index.jsp?bc=/about/benefits-overview/retirement/retirement-benefits.xml) for all state employees which they take out at least 7.5% of every employee's paychecks. My position is a limited term - only good for 6 months. I started this job back in January 2015. While I got the word that they want to renew my position, I do not want to stay here long term.

As for my other job with small company, because I'm paid hourly, I'm not qualified to get benefits from them. So that's why I was asking what was the best alternative. I thought it was Traditional IRA and Roth IRA.

But it looks like the best way to go for now is to contribute to my IRA Roth and Savings. Then once I get benefits from the small company, I'll sign up for their 401k. Correct me if I'm wrong.

I do appreciate everyone's feedback on this thread, and I thank them for taking their time to comment.

With the different information you've provided about your situation, I'm too unclear about your situation to give any specific advice. You may need to discuss this with your employer or a tax advisor.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #28 on: May 18, 2015, 11:49:37 AM »
With the different information you've provided about your situation, I'm too unclear about your situation to give any specific advice. You may need to discuss this with your employer or a tax advisor.

That's fair, thank you forummm.

I'll make changes to my Roth 401K funds to get the low expense ratios.

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Re: Recovering after shooting myself in the foot...
« Reply #29 on: May 18, 2015, 12:09:20 PM »
Based on your inputs, you might be close to the limits on contributing to a Roth IRA:
http://www.forbes.com/sites/ashleaebeling/2014/10/23/irs-announces-2015-retirement-plan-contribution-limits-for-401ks-and-more/
For 2015, "For singles and heads of household, the income phase-out range is $116,000 to $131,000."
So I would stop contributing to it, then max it at the end of the year once you know you're under the limit.

So you're offered calpers but no 401k plan (or other plan) through your state job?  You're only real option is outside taxable investments then. 

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Re: Recovering after shooting myself in the foot...
« Reply #30 on: May 18, 2015, 12:32:41 PM »
Based on your inputs, you might be close to the limits on contributing to a Roth IRA:
http://www.forbes.com/sites/ashleaebeling/2014/10/23/irs-announces-2015-retirement-plan-contribution-limits-for-401ks-and-more/
For 2015, "For singles and heads of household, the income phase-out range is $116,000 to $131,000."
So I would stop contributing to it, then max it at the end of the year once you know you're under the limit.

Ahhh, I forgot about the limit for IRA Roth. I'm little confused about the 116k-131k limit though. How does this work? Why not just cap off at 116k?

However I did the math, it looks like I will be under $100k for 2015, assuming things are steady. Thanks for the reminder though.

So you're offered calpers but no 401k plan (or other plan) through your state job?  You're only real option is outside taxable investments then.

Not offered, more like forced. I can't opt out if I wanted to. This is mandatory.

Do you have a good link for how taxable investments work as I'm still confused in that area?

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Re: Recovering after shooting myself in the foot...
« Reply #31 on: May 18, 2015, 01:16:32 PM »
I'm little confused about the 116k-131k limit though. How does this work? Why not just cap off at 116k?

However I did the math, it looks like I will be under $100k for 2015, assuming things are steady. Thanks for the reminder though.
Up to $116K you can contribute $5,500.  Above $131K you can contribute $0.  In between, the amount you can contribute drops linearly from $5,500 to $0 as your income increases from $116K to $131K.  E.g., at an income of $120K you can contribute (131 - 120) / 15 *  5500 = $4033 (or thereabouts - the actual calculation does some rounding - see http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2015).

Quote
Do you have a good link for how taxable investments work as I'm still confused in that area?
They work pretty much the same way an IRA does, except you pay taxes on income.  What specific question(s) do you have?

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #32 on: May 18, 2015, 03:22:01 PM »
I worked for the State of California before, and had the 7.5% contributed to the retirement plan. When I worked there (over a decade ago) it was nice because it's a pre-tax contribution, and when I left employment there, I rolled it over into an IRA. So it was like a bonus IRA or bonus 401k. Yours may work differently.

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Re: Recovering after shooting myself in the foot...
« Reply #33 on: May 19, 2015, 07:23:17 AM »
Do you have a good link for how taxable investments work as I'm still confused in that area?

You will get dividends each year that you'll pay taxes on, and if you sell any assets, you'll get capital gains (on profits) and have to pay taxes on that.  You'll want to keep your funds for at least a year so you pay long term capital gains instead of short term:
http://en.wikipedia.org/wiki/Capital_gains_tax_in_the_United_States

There's also a tactic called tax lost harvesting that's more advanced that can be beneficial:
http://www.madfientist.com/tax-loss-harvesting/
http://www.madfientist.com/tax-gain-harvesting/

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #34 on: May 20, 2015, 04:22:40 PM »
Up to $116K you can contribute $5,500.  Above $131K you can contribute $0.  In between, the amount you can contribute drops linearly from $5,500 to $0 as your income increases from $116K to $131K.  E.g., at an income of $120K you can contribute (131 - 120) / 15 *  5500 = $4033 (or thereabouts - the actual calculation does some rounding - see http://www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2015).

Thanks for the explanation MDM.

Quote
They work pretty much the same way an IRA does, except you pay taxes on income.  What specific question(s) do you have?

Like Roth IRA? Same limitations?

I worked for the State of California before, and had the 7.5% contributed to the retirement plan. When I worked there (over a decade ago) it was nice because it's a pre-tax contribution, and when I left employment there, I rolled it over into an IRA. So it was like a bonus IRA or bonus 401k. Yours may work differently.

So you do understand how it works over here. Did you increase your percentage or just left it at 7.5%? Also when you rolled over after you left, was it to a traditional IRA?

There's also a tactic called tax lost harvesting that's more advanced that can be beneficial:
http://www.madfientist.com/tax-loss-harvesting/
http://www.madfientist.com/tax-gain-harvesting/

Thanks, MrMoogle, I'll have to read these. Will def. ask questions afterward.

forummm

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Re: Recovering after shooting myself in the foot...
« Reply #35 on: May 20, 2015, 04:57:05 PM »
I worked for the State of California before, and had the 7.5% contributed to the retirement plan. When I worked there (over a decade ago) it was nice because it's a pre-tax contribution, and when I left employment there, I rolled it over into an IRA. So it was like a bonus IRA or bonus 401k. Yours may work differently.

So you do understand how it works over here. Did you increase your percentage or just left it at 7.5%? Also when you rolled over after you left, was it to a traditional IRA?

I am uncertain whether what I mentioned is the same thing you are mentioning. I suggest you talk to your benefits staff for more information. In my case, I could not increase or decrease the contributions. In my case it was a traditional IRA that I could roll mine into. I then converted it into a Roth IRA, paying taxes on the income. Now, I wish I had just kept it in a traditional IRA, but you live and learn.

Nutso

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Re: Recovering after shooting myself in the foot...
« Reply #36 on: May 20, 2015, 05:10:28 PM »
I am uncertain whether what I mentioned is the same thing you are mentioning. I suggest you talk to your benefits staff for more information. In my case, I could not increase or decrease the contributions. In my case it was a traditional IRA that I could roll mine into. I then converted it into a Roth IRA, paying taxes on the income. Now, I wish I had just kept it in a traditional IRA, but you live and learn.

I am pretty sure it's the same thing, and I probably worded it wrong. I will check with my HR rep about this anyway. I hear you about leaving it in traditional IRA. I made the same mistake long time ago. When I leave this job, I'll be sure to rollover to a traditional IRA. :-)

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Re: Recovering after shooting myself in the foot...
« Reply #37 on: May 20, 2015, 05:17:28 PM »

Do you have a good link for how taxable investments work as I'm still confused in that area?
Quote
They work pretty much the same way an IRA does, except you pay taxes on income.  What specific question(s) do you have?

Like Roth IRA? Same limitations?

No limitations at all in a taxable account.  The limitations on tax-advantaged (e.g., Roth or Traditional IRA or 401k) accounts are there to prevent you from saving too much on taxes.  When you are paying taxes the IRS sets no limits.