Author Topic: Solo 401K help for a newbie  (Read 3590 times)

ChelseaBlair

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Solo 401K help for a newbie
« on: November 17, 2014, 11:05:11 AM »
Hi all! I'm new to this forum, but found MMM earlier this year. I've been frugal and a great saver my whole life, but this year I woke up to actively investing money which I've been quite bad at the last few years (I'm 27, so I've got time..although I wish I started earlier).
My job is in event marketing and I work in the field freelance, but I am hired by large agencies, usually on a 1099. This can vary depending on the company (because I freelance, I work for several companies and sometimes I'm paid as an employee-but never given access to their benefits). This year I worked for one agency on a 9 month contract. The first quarter of the year, I was paid by the company as an employee, but our client requested that we be moved to 1099, which is how I've been getting paid since late March-April. I have filed my taxes as a sole proprietor since I graduated college. Because of the type of work I do, I have never had access to a 401K and I just discovered the Solo 401K. For the last few years, I have been maxing out a Roth IRA for $5,500, but this year I'd like to max out a Solo 401K as well (don't yell at me, but I do have the cash available to move over a lump sum from a high-interest checking account). I am looking to do a traditional 401K at this point (I make less than $60K, so it's my understanding that I'll be eligible for the full tax deduction). I spoke with someone at Vanguard today, and I should be eligible, but looking at the forms, I need an EIN. So now I have to apply for an EIN, etc (I usually use my SS#, but apparently I can't for this) and I'm wanting to verify this with some people who have more experience. Looking at the IRS site regarding applying for an EIN is a bit intimidating.
Also, I know some people prefer Fidelty's Solo 401K to Vanguard, and my parents have money saved with Fidelty that they've been happy with.
 
I was looking to Vanguard because:
1-I already have accounts with them, and I like being able to view everything in one place
2-I am a Voyager member, so I wouldn't have to pay the $20/fund fee (not that this is a huge fee, but it's nice..)
3-I have been very happy with Vanguard thus far. Although people knock their CS for low fees, I had a really great experience when I called them.
4-I am just looking to start a basic traditional 401K. I don't have anything to roll over, from past employers, etcetc. The plan is to keep my Roth IRA's as-is (for now) and then max-out a Solo 401K
5-Even though you can't buy Admiral shares for Vanguards Solo 401K (bummer), the fees still seem to be lower than other providers. Is this correct?

Any direction in applying for an EIN in my situation? And any reason I might be missing to look into Fidelty over Vanguard for Solo 401K?
Please be kind-I've got the saving/frugal part under control, but I'm still learning about how I can maximize tax advantages, etc

jawisco

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Re: Solo 401K help for a newbie
« Reply #1 on: November 17, 2014, 07:43:14 PM »
I have had a solo 401k for many years and it is amazing in its ability to tax shelter income.  I have mine with Fidelity and it is a painless process and you can call them up and they will walk you through it.  I am sure Vanguard is fine as well.

You do need an EIN and don't be afraid - here is instructions to walk you through it - http://www.mysolo401k.net/ein-number/

I would get going on this - you need to have your plan established before the end of the year and it doesn't happen in 1 day (at least that I know of) - you have to send things in, etc.

Also - keep good records of this - it is important that you do things correctly and keep your records.  You are responsible for doing this correctly.  It isn't hard, but it is important if you are ever audited or need the bankruptcy protection that a 401K provides to have done it "by the book".

bacchi

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Re: Solo 401K help for a newbie
« Reply #2 on: November 18, 2014, 11:47:22 AM »
Fidelity doesn't require an EIN or even a legal business. You still have time but, if you're running late, start one with Fidelity and transfer it (or not) later.


jawisco

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Re: Solo 401K help for a newbie
« Reply #3 on: November 18, 2014, 06:27:02 PM »
I just opened one this year for my wife and they required EIN, FYI.

ChelseaBlair

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Re: Solo 401K help for a newbie
« Reply #4 on: November 18, 2014, 09:43:11 PM »
Seriously. I feel like my accountant could have mentioned it in previous years :-o
I am going to take care of this tomorrow morning (well, mailing everything in..) and am going to try to max it out from employer/employee sides. Can I pay myself from the employer end even though I am hired by a company? I am paid as an IC and file as sole proprietor. It's not technically 'my business', but I guess from a tax perspective, it is?

I have had a solo 401k for many years and it is amazing in its ability to tax shelter income.  I have mine with Fidelity and it is a painless process and you can call them up and they will walk you through it.  I am sure Vanguard is fine as well.

You do need an EIN and don't be afraid - here is instructions to walk you through it - http://www.mysolo401k.net/ein-number/

I would get going on this - you need to have your plan established before the end of the year and it doesn't happen in 1 day (at least that I know of) - you have to send things in, etc.

Also - keep good records of this - it is important that you do things correctly and keep your records.  You are responsible for doing this correctly.  It isn't hard, but it is important if you are ever audited or need the bankruptcy protection that a 401K provides to have done it "by the book".

waltworks

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Re: Solo 401K help for a newbie
« Reply #5 on: November 19, 2014, 08:04:07 AM »
Mods, kill!

There is an important mistake people can make. When you invest a large sum of money where you work, if the company starts doing poorly layoffs will usually go along with decreases in the company's stock and the value of your portfolio. So, you could lose your job at the same time you lose a huge chunk of your retirement fund, a very bad combination. Diversification is about more than just holding a lot of different stocks, it is about reducing your overall financial risk. Jerry from (link removed)
« Last Edit: November 19, 2014, 11:15:32 AM by arebelspy »

bacchi

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Re: Solo 401K help for a newbie
« Reply #6 on: November 19, 2014, 11:09:34 AM »
I just opened one this year for my wife and they required EIN, FYI.

Ah, ok. I opened a Fido 401k with my SS# and name but that was years ago. Mea culpa.

arebelspy

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Re: Solo 401K help for a newbie
« Reply #7 on: November 19, 2014, 11:15:08 AM »
Mods, kill!

There is an important mistake people can make. When you invest a large sum of money where you work, if the company starts doing poorly layoffs will usually go along with decreases in the company's stock and the value of your portfolio. So, you could lose your job at the same time you lose a huge chunk of your retirement fund, a very bad combination. Diversification is about more than just holding a lot of different stocks, it is about reducing your overall financial risk. Jerry from (link removed)

Just did.  FYI, clicking "report" on the bottom right of a post gets us the message.  This sort of in-thread message we may not see (though I did eventually see it, because someone clicked "report post" a few hours after you posted the above message).  :)
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jawisco

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Re: Solo 401K help for a newbie
« Reply #8 on: November 19, 2014, 06:49:29 PM »
Seriously. I feel like my accountant could have mentioned it in previous years :-o
I am going to take care of this tomorrow morning (well, mailing everything in..) and am going to try to max it out from employer/employee sides. Can I pay myself from the employer end even though I am hired by a company? I am paid as an IC and file as sole proprietor. It's not technically 'my business', but I guess from a tax perspective, it is?

I have had a solo 401k for many years and it is amazing in its ability to tax shelter income.  I have mine with Fidelity and it is a painless process and you can call them up and they will walk you through it.  I am sure Vanguard is fine as well.

You do need an EIN and don't be afraid - here is instructions to walk you through it - http://www.mysolo401k.net/ein-number/

I would get going on this - you need to have your plan established before the end of the year and it doesn't happen in 1 day (at least that I know of) - you have to send things in, etc.

Also - keep good records of this - it is important that you do things correctly and keep your records.  You are responsible for doing this correctly.  It isn't hard, but it is important if you are ever audited or need the bankruptcy protection that a 401K provides to have done it "by the book".

I am not sure how I heard of the solo 401K, but my accountant not only didn't mention it - he never even heard of it!  I had to give him information about it and then he figured out what to do with the tax software.

If you are independant contractor, you certainly are your own business.  If you haven't thought of your job like that, you might want to delve into business deductions.  A few hours of learning those things, could save you tons of money in future years - doesn't sound like your accountant is spending much time thinking about how to make your financial life better.