Self-employed investing strategies

[burninglights]

I'm curious how the self-employed invest on their way to FIRE.

I've already maxed out my Roth IRA for 2018, and am unsure if it would be wiser to open one of the various self-employed 401ks or a taxable account from here on out. I have no employees and project I will net somewhere around 50k this year.

[BigHaus89]

A solo-401k is a great option to lower your taxable income. Vanguard is a good way to go.

[BiggerFishToFI]

Yep, solo 401k. Allows for much higher limits per year also, I believe 54k. At your income level you wont be eligible for all of that, but still much more than the standard 18500 I'm sure.

[noplaceliketheroad]

PTF


Our CPA has advised us to go the SEP IRA route.

[BTDretire]

PTF


Our CPA has advised us to go the SEP IRA route.

   SEP/IRA is what my wife and I use. Small business, no employees.
 At $50k, you may not want to put many away tax free. If you get yourself into the
12% bracket, a Roth may be preferable.
  I'm looking at what my RMDs will be and wishing I didn't have so much tax deferred.

[TexasRunner]

Solo-401k is the way to go assuming you are fine with 59 1/2 age restrictions.

(And see elsewhere about getting around that rule)


The reasoning is that you artificially reducing your income which helps drastically with taxes and various subsidies.

Even at a mere 15% bracket, Solo-401k wins drastically over taxable.  And you can do up to 53,000$ without paying taxes on that money (depending on income).

On top of the $18,000, as the employer you can also make a nonelective profit sharing contribution up to 25% of your pay (which would be based on your W-2).

Total contributions (not including any catch up contributions for being 50 or older) cannot exceed $53,000 for 2015. (I have an example below). This means that if you max out your elective deductions at $18,000 then the business can contribute a maximum of $35,000 to your account.

https://www.goodfinancialcents.com/solo-401k-contribution-limits-rules-plans/

[tralfamadorian]

I have a IRA, HSA and SE401k to maximize tax-deferred investing.

The choice between the SE401k and SEP IRA will depend on how much you have to put away this year and whether you expect that to change in the future. The SEP IRA caps at 25% of income. The SE401k caps at 25% of income plus 18K. 

Sometimes you hear that the SE401k is expensive or time consuming to open. It was a couple page document when I opened mine with Fidelity. I called them with some questions, which they helped walk me through. It took maybe 1.5 hours total and there were no fees. For the ability to sock away another 18k/yr tax-deferred, it's a no-brainer.

[burninglights]

Thanks everyone, very helpful!

[burninglights]

I've been looking into a solo 401k through Vanguard and they apparently do not allow you to upgrade to admiral shares when you pass 50K. Is this standard throughout the industry?

[tralfamadorian]

No, it's not standard. Fidelity lets me buy VTSAX with a $500 minimum.

[Lucky Girl]

Last year we were at 60%.
This year we are at 72%.

But that is on 4% rule, and I think my spouse will want to wait until we are at least at 3.5%
So if I calculate that, we are at 64% now.  I think I'm likely to call it quits when we high our 4% number, and let spouse go the rest (its really mostly investment gains at that point anyway).

[TexasRunner]

I've been looking into a solo 401k through Vanguard and they apparently do not allow you to upgrade to admiral shares when you pass 50K. Is this standard throughout the industry?

That doesn't sound quite right...?  Do you have any more details?

I've got plenty of Admiral funds in several different account 'types' with them.

Any vanguardians (<- lol) on here know something more specific?

[burninglights]

I've been looking into a solo 401k through Vanguard and they apparently do not allow you to upgrade to admiral shares when you pass 50K. Is this standard throughout the industry?

That doesn't sound quite right...?  Do you have any more details?

I've got plenty of Admiral funds in several different account 'types' with them.

Any vanguardians (<- lol) on here know something more specific?

I don't have any more details -- this is what the rep on the phone told me. I may have been mistaken about the 50K (as in my IRA I was eligible for admiral after 10k), but he was very clear that admiral shares are not available in the individual 401k plan, whereas they are available in the SEP-IRA and other self-employment plans

[burninglights]

There is a discussion here about the lack of the admiral shares option with vanguard's i401k: http://retireby40.org/vanguard-individual-401k/

I think I will go with vanguard anyway, just to keep all my investments in one place. I suppose I can roll it over elsewhere if/when the fraction of a percentage begins to make a real difference.

[Fishindude]

Lots of things you can do:
401K
Mutual funds
Individual stocks
Income producing real estate
Some type of "low effort required" side business

[spokey doke]

I need to get on this...so thanks for the reminder...

and I also found this:

https://thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/

[TomTX]

There is a discussion here about the lack of the admiral shares option with vanguard's i401k: http://retireby40.org/vanguard-individual-401k/

I think I will go with vanguard anyway, just to keep all my investments in one place. I suppose I can roll it over elsewhere if/when the fraction of a percentage begins to make a real difference.

So just buy the ETFs. VTI has the same fund expenses as VTSAX.

[BigHaus89]

There is a discussion here about the lack of the admiral shares option with vanguard's i401k: http://retireby40.org/vanguard-individual-401k/

I think I will go with vanguard anyway, just to keep all my investments in one place. I suppose I can roll it over elsewhere if/when the fraction of a percentage begins to make a real difference.

Yes, it's investor shares only (for some reason).

[burninglights]

There is a discussion here about the lack of the admiral shares option with vanguard's i401k: http://retireby40.org/vanguard-individual-401k/

I think I will go with vanguard anyway, just to keep all my investments in one place. I suppose I can roll it over elsewhere if/when the fraction of a percentage begins to make a real difference.

So just buy the ETFs. VTI has the same fund expenses as VTSAX.

Dang, they actually don't let you buy ETFs in the solo 401k either.