Solo 401k Funds and Contributions

[frugalquest]

Hello,
I have a small business and opened a solo 401k with Vanguard.

I've got 2k to contribute, but I'm a little thrown by the process.

My questions:
I want to contribute as an employee first, right? Then if I have some more, I can contribute as the employer?

I'm looking at the STAR fund right now. (https://investor.vanguard.com/mutual-funds/profile/VGSTX) Any thoughts on this fund or another one to look into from y'all money nerds?

Thank you.

[Laserjet3051]

I just opened up an i 401k with VG as well. Timing of contributions (EE vs ER) depends on several variables but I think I read that EE contributions must occur within a specified time period from the salary deferral election for each paycheck (maybe a week or 2?), whereas ER contribution(s) dont have to take place until the deadline, which is filing date next year. How much and when we contribute to the i401K (EE vs ER) depends on ones personal circumstance.

with regard to fund selection, I have chosen the following:

VBMFX (total int. bond)
VFINX (S&P 500)
VDVIX (developed markets)

as admiral share classes are unavailable in the i401K. My total portfolio AA, however looks a lot different than that described above, but due to limitations set forth by VG (no ETFs, no admiral class), this was my best pick for my situation.

YMMV

[jacoavluha]

Timing depends on business structure.

If a sole proprietor (1099 income, independent contractor, default), it doesn’t really matter when you contribute employee contributions.. Sometime after receipt of earnings.

If for some reason your business has an S election (S Corp) employee deferral has to come from payroll. Because they can’t come from funds already received by the employee.

Employer profit sharing deadline is as already replied. You have until the tax filing deadline including extensions.

Do not ever over contribute. You’ll create a mess to clean up.

[marbar]

To answer your question: yes. Contribute as an employee first up to $18,500 (unless you have another plan through a different employer with 2018 contributions).

Next make employer contributions, but be careful with the employer contribution limits since they depend on your company net income. See here for info on how to calculate appropriately https://www.financialsamurai.com/how-much-can-i-contribute-to-a-self-employed-401k-plan/

[frugalquest]

Thanks for the input all. I will look into those funds suggested, and definitely will do employee first. Not going to hit the 18.5 this year (but aiming for next year) so should be pretty simple...as far as this kind of account is ever simple.

[Laserjet3051]

To answer your question: yes. Contribute as an employee first up to $18,500 (unless you have another plan through a different employer with 2018 contributions).

Next make employer contributions, but be careful with the employer contribution limits since they depend on your company net income. See here for info on how to calculate appropriately https://www.financialsamurai.com/how-much-can-i-contribute-to-a-self-employed-401k-plan/

I dont agree that its as simple as contributing as an EE first. Everyones situation is different. In some circumstances, employer contributions first may be prudent.

Remember, ER contributions, unlike EE contributions are NOT subject to payroll taxes as they are considered to be a business expense.

[harvestbook]

I agree, don't wait to fill up the employee contribution before contributing employer match unless you are guaranteed to max out both with enough net income. Don't miss out on the SE savings on the employer side, though you may want to hone the final employer amount when you do taxes.

Additionally, if you're an S-Corp, the 25 percent match is based on Box 1, Employee Compensation, which can include your health insurance and HSA if the corporation pays them.

[terran]

I agree, don't wait to fill up the employee contribution before contributing employer match unless you are guaranteed to max out both with enough net income. Don't miss out on the SE savings on the employer side, though you may want to hone the final employer amount when you do taxes.

Additionally, if you're an S-Corp, the 25 percent match is based on Box 1, Employee Compensation, which can include your health insurance and HSA if the corporation pays them.

Sole proprietors don't save on FICA with either employee or employer solo 401(k) contributions, S-corps do. There's a better explanation of this from @SeattleCPA in a pretty recent thread in the tax forum.

[Fuzz]

Put me in the camper people who make the employer contribution first, so as not to pay payroll taxes. And depending on how big you are, you should look at whether you filing as an s corp makes sense. Also with Vanguard it is reasonably easy to recharacterize the employee or employer contribution, just make sure you do it before the end of the year.

[marbar]

To answer your question: yes. Contribute as an employee first up to $18,500 (unless you have another plan through a different employer with 2018 contributions).

Next make employer contributions, but be careful with the employer contribution limits since they depend on your company net income. See here for info on how to calculate appropriately https://www.financialsamurai.com/how-much-can-i-contribute-to-a-self-employed-401k-plan/

I dont agree that its as simple as contributing as an EE first. Everyones situation is different. In some circumstances, employer contributions first may be prudent.

Remember, ER contributions, unlike EE contributions are NOT subject to payroll taxes as they are considered to be a business expense.

I was being presumptuous and assuming the business was either a sole proprietorship or LLC taxed as a partnership. In those cases it ER or EE first should not matter.