Comments on: Solo 401k For Part-Time Self-Employment http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html like a friend telling you about money ... Thu, 19 Nov 2009 19:44:17 -0600 http://wordpress.org/?v=2.8 hourly 1 By: Brad http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-2450 Brad Thu, 16 Jul 2009 23:39:25 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-2450 Right you are. I assumed the limit on a solo (individual) 401k was the same $16.5k as for a corporate 401k. But they're different. A "corporate" is really a W-2 401k, then you can also contribute 20% or 25% on top of that. So as you say, a solo or individual 401k allows even higher contributions if you have both a W-2 and a proprietorship/Sched C business (if you want to do the paperwork--though SEP paperwork isn't that simple either, but in both cases a trustee like Schwab or whoever does most of the work for you). Thanks for the info! Useful link: http://www.sepira.com/sep_ira/sep-or-401k.htm I'll spell it out in case your security strips it: sepira.com/sep_ira/sep-or-401k.htm Right you are. I assumed the limit on a solo (individual) 401k was the same $16.5k as for a corporate 401k. But they're different. A "corporate" is really a W-2 401k, then you can also contribute 20% or 25% on top of that. So as you say, a solo or individual 401k allows even higher contributions if you have both a W-2 and a proprietorship/Sched C business (if you want to do the paperwork–though SEP paperwork isn't that simple either, but in both cases a trustee like Schwab or whoever does most of the work for you).

Thanks for the info!

Useful link: http://www.sepira.com/sep_ira/sep-or-401k.htm

I'll spell it out in case your security strips it: sepira.com/sep_ira/sep-or-401k.htm

]]> By: TFB http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-2447 TFB Thu, 16 Jul 2009 23:04:51 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-2447 Brad - No you cannot put away even more in a SEP-IRA than a solo 401k. At most you can contribute the *same* amount in a SEP-IRA, but not more. The limit on the employer profit sharing side is exactly the same between SEP-IRA and solo 401k. There is no salary deferral in a SEP-IRA, while there is salary deferral on top of employer profit sharing in a solo 401k. That's the difference. If you max out 401k at work, SEP-IRA and solo 401k give you the same maximum. If your work 401k isn't that great, you can get the match and do the rest in your own solo 401k. You don't have that option with a SEP-IRA. In addition, you cannot use a SEP-IRA as a safe haven for your other IRA money for the purpose of converting to Roth IRA in 2010 and thereafter. Brad – No you cannot put away even more in a SEP-IRA than a solo 401k. At most you can contribute the *same* amount in a SEP-IRA, but not more.

The limit on the employer profit sharing side is exactly the same between SEP-IRA and solo 401k. There is no salary deferral in a SEP-IRA, while there is salary deferral on top of employer profit sharing in a solo 401k. That's the difference.

If you max out 401k at work, SEP-IRA and solo 401k give you the same maximum. If your work 401k isn't that great, you can get the match and do the rest in your own solo 401k. You don't have that option with a SEP-IRA. In addition, you cannot use a SEP-IRA as a safe haven for your other IRA money for the purpose of converting to Roth IRA in 2010 and thereafter.

]]> By: Brad http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-2446 Brad Thu, 16 Jul 2009 22:17:33 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-2446 Why do a solo 401k, when you could just do a SEP-IRA instead. You can put away even more in a SEP-IRA than a 401k, without all the administration headaches, etc. You can put away up about $49,000 (25% of $196,000)... Something like that. I suppose if your income is such that you want to put away $16,500 (in 2009) into a 401k, but you make less than 4x or 5x that (25% or 20%), then possibly the headaches of a 401k would be worthwhile. I don't think there is any limitation of SEP-IRAs if you are also covered at work (but maybe I'm wrong about that, in which case, you're right--and never mind! ;-) Cheers, Brad Why do a solo 401k, when you could just do a SEP-IRA instead. You can put away even more in a SEP-IRA than a 401k, without all the administration headaches, etc.

You can put away up about $49,000 (25% of $196,000)… Something like that.

I suppose if your income is such that you want to put away $16,500 (in 2009) into a 401k, but you make less than 4x or 5x that (25% or 20%), then possibly the headaches of a 401k would be worthwhile.

I don't think there is any limitation of SEP-IRAs if you are also covered at work (but maybe I'm wrong about that, in which case, you're right–and never mind! ;-)

Cheers,
Brad

]]> By: Susan http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1797 Susan Mon, 30 Mar 2009 20:52:44 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1797 Thank you so much. I have been laboring over the Fidelity worksheet but wasn't entirely sure it was correct, since I also fall into the part-time category you outline. Your worksheet is a whole lot easier...and the numbers came out the same -- even better! Thanks! Thank you so much. I have been laboring over the Fidelity worksheet but wasn't entirely sure it was correct, since I also fall into the part-time category you outline. Your worksheet is a whole lot easier…and the numbers came out the same — even better! Thanks!

]]> By: Bob http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1204 Bob Sat, 06 Dec 2008 16:12:12 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1204 Great work TFB! I have been looking for something like this for a while. Great work TFB! I have been looking for something like this for a while.

]]> By: TFB http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1193 TFB Tue, 02 Dec 2008 06:02:26 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1193 Alex - Thank you for cross-checking the calculations. There's a slight difference between your spreadsheet and mine. Using the default numbers, if you make the employee salary deferral $743.48, then the maximum employer profit sharing is only $92.94. You can't make the full 20% profit sharing contribution because it has to be no more than one half of the "Adjusted Net Business Profit after Elective Salary Deferral" (line 6 in Schwab's worksheet). If you want to keep the 20% profit sharing, then the employee salary deferral to solo 401k has to be no more than $557.61. Alex – Thank you for cross-checking the calculations. There's a slight difference between your spreadsheet and mine. Using the default numbers, if you make the employee salary deferral $743.48, then the maximum employer profit sharing is only $92.94. You can't make the full 20% profit sharing contribution because it has to be no more than one half of the "Adjusted Net Business Profit after Elective Salary Deferral" (line 6 in Schwab's worksheet). If you want to keep the 20% profit sharing, then the employee salary deferral to solo 401k has to be no more than $557.61.

]]> By: Alex Benke @ MoneyMerc http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1192 Alex Benke @ MoneyMerc Tue, 02 Dec 2008 00:34:14 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1192 Hi TFB, was very excited to see your spreadsheet, I thought I was the only one who created crazy things like this. I created one earlier in the year for a similar purpose (day job + part time job with solo 401k). My goal, however, is to maximize contributions in my solo 401k, since I have full freedom of investment choices there. Granted, it makes a bigger difference once you have more self employment income (I'm contributing 100% this year to my solo 401k, which is almost maxing it out) The OTHER wrinkle, though, is my day-job employer offers a match up to 5% of my contribution. So my goals are to maximize that match first, then the solo-k to the extent of self employment income, and then fill out up to my 15.5k overall limit. Like you, I'm not a CPA - but using your #s your calc's check out with mine ;-) http://sheet.zoho.com/public/abenke/2008-retirement-contributions-planning-web Hi TFB, was very excited to see your spreadsheet, I thought I was the only one who created crazy things like this. I created one earlier in the year for a similar purpose (day job + part time job with solo 401k). My goal, however, is to maximize contributions in my solo 401k, since I have full freedom of investment choices there. Granted, it makes a bigger difference once you have more self employment income (I'm contributing 100% this year to my solo 401k, which is almost maxing it out) The OTHER wrinkle, though, is my day-job employer offers a match up to 5% of my contribution. So my goals are to maximize that match first, then the solo-k to the extent of self employment income, and then fill out up to my 15.5k overall limit. Like you, I'm not a CPA – but using your #s your calc's check out with mine ;-)

http://sheet.zoho.com/public/abenke/2008-retirement-contributions-planning-web

]]> By: frugalchick http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1135 frugalchick Fri, 14 Nov 2008 21:40:11 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1135 Yes, I agree with Matt. Thanks for filling the void. I've been looking for this info for quite a while now with no success. Thanks! Yes, I agree with Matt. Thanks for filling the void. I've been looking for this info for quite a while now with no success. Thanks!

]]> By: Matt http://thefinancebuff.com/2008/11/solo-401k-for-part-time-self-employment.html/comment-page-1#comment-1120 Matt Tue, 11 Nov 2008 16:14:47 +0000 http://thefinancebuff.com/2008/10/solo-401k-for-part-time-self-employment.html#comment-1120 Was wondering why I hadn't seen this issue addressed in any of the personal finance blogs I read. Nice job filling the void! This is very helpful. Matt Was wondering why I hadn't seen this issue addressed in any of the personal finance blogs I read. Nice job filling the void! This is very helpful.

Matt

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