Author Topic: Solo 401(k)/SEP IRA  (Read 3471 times)

RhythmKats

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Solo 401(k)/SEP IRA
« on: August 04, 2014, 06:25:48 PM »
A little background:
I am a freelancer, but much of my income is reported on W-2's. Since I'm a part time employee at a bunch of different places, I don't have a retirement account through any of my employers. I do have a Roth IRA which I have maxed out the past 3 years. I also have some work that is 1099, but in years past my overall income has not been high enough for me to be able to consider putting away more than the $5500 in my Roth IRA.

This year I have a bit more 1099 income and am considering opening a Solo 401(k) or a SEP IRA. I could maybe invest $1500-$2000 for 2014 in this new account (in addition to maxing out my Roth IRA). My Roth is with Vanguard and is 100% VTSMX.

Questions:
1. With a Solo 401(k) or SEP IRA, could I only invest a percentage of the income earned through 1099 work?
2. I'm pretty comfortable being all in stocks. I'm 33 and plan on holding them for a while. Does it make sense to invest in VTSMX in the new acct also? Or should I consider investing in a different fund?

I hope this makes sense! Please ask questions if you need more info.

Thanks!
RK

Habilis

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Re: Solo 401(k)/SEP IRA
« Reply #1 on: September 16, 2014, 06:04:32 PM »
The limits for a SEP are 25% of compensation or $52k, whichever is less. I'm also very interested in this and would love to hear from others.

Ybserp

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Re: Solo 401(k)/SEP IRA
« Reply #2 on: September 16, 2014, 08:10:07 PM »
A solo 401k has a employee (you) limit of $17,500 / 100% of compensation which ever is less AND an employer (also you) limit of 25% of compensation. http://www.irs.gov/Retirement-Plans/One-Participant-401(k)-Plans

You do have to be careful about figuring in the self employment taxes and all your expenses to ensure you really know what your business income is for tax purposes. (It isn't just your gross.)

You also have the option of making the employee side of the plan be a Roth 401k.

RhythmKats

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Re: Solo 401(k)/SEP IRA
« Reply #3 on: September 19, 2014, 11:09:00 AM »
Thanks for your response and the tip regarding gross vs. adjusted business income. Good to know!

Any thoughts on holding VTSMX in both my Roth IRA and a SEP IRA or Solo 401k...as opposed to investing in a different fund?

RichMoose

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Re: Solo 401(k)/SEP IRA
« Reply #4 on: September 19, 2014, 11:21:06 AM »
Thanks for your response and the tip regarding gross vs. adjusted business income. Good to know!

Any thoughts on holding VTSMX in both my Roth IRA and a SEP IRA or Solo 401k...as opposed to investing in a different fund?

VTSMX is a great, well diversified fund that would work good in both accounts. First figure out your desired asset allocation based on your risk tolerance and go from there. You may want some bonds and some foreign as well.

RhythmKats

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Re: Solo 401(k)/SEP IRA
« Reply #5 on: September 19, 2014, 11:28:56 AM »
Thanks.

Right now I'm comfortable being all in stocks since I have a bit of time to weather the ups and downs of the market. I was feeling a bit weird about holding VTSMX in 2 separate accounts, but considering it's a well diversified fund (at least for stocks), I guess it makes sense. Since I'm relatively new to this it's always great to hear others' perspectives.

Justin234

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Re: Solo 401(k)/SEP IRA
« Reply #6 on: September 19, 2014, 04:01:42 PM »
There was a fairly long thread on the same topic last year:

http://forum.mrmoneymustache.com/index.php?topic=9891.msg155409#msg155409

Several people (including me) discussed the process of setting up a Solo-401k through Vanguard. So far I've had no problems.

Edit: Not saying this will address your specific questions, but you also might find some useful info.

iamlindoro

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Re: Solo 401(k)/SEP IRA
« Reply #7 on: September 19, 2014, 06:16:56 PM »
There was a fairly long thread on the same topic last year:

http://forum.mrmoneymustache.com/index.php?topic=9891.msg155409#msg155409

Several people (including me) discussed the process of setting up a Solo-401k through Vanguard. So far I've had no problems.

Edit: Not saying this will address your specific questions, but you also might find some useful info.

Yup, still going strong.  I love the Solo 401(k).  I was offered a full time position with a slightly higher income and turned it down because when all is said and done, I save and keep more money by remaining self employed and maxing out the solo 401(k).

TomTX

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Re: Solo 401(k)/SEP IRA
« Reply #8 on: September 20, 2014, 05:29:49 AM »
Folks, he's not talking about maxing out a Solo 401k - he's talking about at most $2,000.

I'd seriously look at a SIMPLE IRA due to the reduced hassle. Yes, limits are lower. Vanguard can help you there too.

RhythmKats

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Re: Solo 401(k)/SEP IRA
« Reply #9 on: September 20, 2014, 09:14:45 AM »
Thanks for the link Justin234. And TomTX, I'll read up about Simple IRAs. Thanks for the suggestion.