Author Topic: tweak a 401k to make it a solo 401k  (Read 1503 times)

solon

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tweak a 401k to make it a solo 401k
« on: October 05, 2017, 05:22:57 AM »
I just read this article about questions rich people ask their accountants. https://wealthyaccountant.com/2017/10/04/7-questions-rich-people-ask-their-accountant/ Very interesting because it compares those questions with the questions poor people ask and draws conclusions about the differences between rich and poor. But in the middle of the article, the author (an accountant) says:

Quote
Retirement accounts are a powerful first line of defense against taxes. The tax code offers multiple opportunities to tax shelter wealth. Not all of the best tax strategies are basic retirement accounts you hear about in the FIRE (financial independence, retire early) blogosphere. I am working with several retirement specialists in building several future blog posts to hyper-charge your tax efficiency using retirement plans within the tax code. (Something to whet your appetite: You never need a solo 401(k)! You can get the same deal as a solo 401(k) with a regular 401(k) if structured properly and at a very low cost. Now anyone can stash $100,000 or more every year into tax advantaged vehicles.)

Can anyone flesh this out before the good accountant can?

Heroes821

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Re: tweak a 401k to make it a solo 401k
« Reply #1 on: October 05, 2017, 07:18:36 AM »
Sounds like click bait to me, I haven't clicked it yet.

My understanding of the 401k "true limit" of $54,000 is that the $36,000 matching is per employer.  So say you work two high income jobs, or you know your a doctor that has a practice that they are part owner on but also moonlights weekends at big city hospital ER.  Your income should be high enough that you would qualify for full contributions at both places for $74,000 in matching, while your personal limit is still $18,000 total. That is still $92,000.  If by "everyone can stash $100,000 + into tax advantaged accounts per year they mean "Everyone with two amazing 401k matches, plus a capped IRA, Plus an HSA"... then sure.  Even with an IRA that still only $97,500.  And since the employer can only match up to your salary of or $54k (the lower number only) You would need access to 2 401ks that would be willing at a minimum to double a $54k salary just to get you those matches.

The solo 401k can only match upto 25% of your salary (in a situation like an S-corp) or 20% of your total income as a sole prop. So S-corp salary would need to be like $145,000 to even hit the $54k limit, or $180,000 in sole proprietor income. 


lexde

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Re: tweak a 401k to make it a solo 401k
« Reply #2 on: October 05, 2017, 07:21:36 AM »
PTF. My income isn't anywhere near where I could use this yet but I'd be interested to see what someone comes up with!

Heroes821

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Re: tweak a 401k to make it a solo 401k
« Reply #3 on: October 05, 2017, 08:08:19 AM »
I read the article.  I'm skeptical about his future blog post idea, but he talks a good game.  I think his boasting in the post was a little excessive, but those 7 questions were pretty good imo. 

I think it was best said in Rich Dad Poor Dad. "Being Rich or Poor is how you think not what you have" I try to stress this to my kids.  I am not even remotely close to the high end of his "upper middle income" number but I've asked almost all of those 7 questions of my accountant.  I asked them because I'm fiscally educated, thirsty for greater financial literacy and I understand how useful a good accountant is. 

That being said I've seen people that make tons of money complain about getting a raise because it moves them to a higher tax bracket.  The mentality is the key. If the $50k a year family took an interest in their financial health and took an hour reading through Google or picking  up Richest Man in Babylon or Millionaire Next Door, they'd probably ask the same questions of him as the much higher earners do.

DavidAnnArbor

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Re: tweak a 401k to make it a solo 401k
« Reply #4 on: October 05, 2017, 09:20:52 AM »
The author is correct, you can set up a regular 401k plan, but it costs thousands to do so I believe.
There was an article in the New York Times about it.

I'll see if I can find it.

solon

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Re: tweak a 401k to make it a solo 401k
« Reply #5 on: October 05, 2017, 09:45:06 AM »
I didn't realize it when I posted this, but the Wealthy Accountant is MMM's accountant. I've been reading his other blog posts now. It's all really good.

DavidAnnArbor

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Re: tweak a 401k to make it a solo 401k
« Reply #6 on: October 05, 2017, 09:46:07 AM »
http://www.nytimes.com/2012/12/01/your-money/defined-benefit-plans-allow-fast-retirement-saving-but-with-risks.html

These are Defined Benefit plans

  • To be compliant with the I.R.S. the plan needs to be in place for at least five years.
  • Pay someone $6,000 to $7,000 a year to do the actuarial calculations.
  • Ideal candidates can put away $100,000 to $150,000 a year for at least 10 years .
  • Have to fund at least to a minimum level each year. Must be prepared to put in extra money if the plan dips enough in value to be considered in default.

bacchi

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Re: tweak a 401k to make it a solo 401k
« Reply #7 on: October 05, 2017, 10:40:56 AM »
http://www.nytimes.com/2012/12/01/your-money/defined-benefit-plans-allow-fast-retirement-saving-but-with-risks.html

These are Defined Benefit plans

  • To be compliant with the I.R.S. the plan needs to be in place for at least five years.
  • Pay someone $6,000 to $7,000 a year to do the actuarial calculations.
  • Ideal candidates can put away $100,000 to $150,000 a year for at least 10 years .
  • Have to fund at least to a minimum level each year. Must be prepared to put in extra money if the plan dips enough in value to be considered in default.

Step 1) Make $400,000 consistently


A friend (specialist) did this. He socked away hundreds of thousands for about 5 years, met the benefit requirement, and then shut it down so it could start paying out.