By Dr. James M. Dahle, WCI Founder
I'm a huge fan of Solo 401(k)s for self-employed physicians. You can max it out ($52K in 2014) on less income than a SEP-IRA, you can get a Roth option in it, and you can still have Backdoor Roth IRAs on the side. If you're an S Corp, the ability to max out the Solo 401(k) on less income allows you to declare more of your income a dividend (and thus less as salary) saving you even more in Medicare tax. (I wouldn't recommend trying to get your income low enough as a physician that you're going to save any Social Security tax.) The paperwork for establishing and maintaining a Solo 401(k) is slightly more difficult than a SEP-IRA, but still no big deal. Solo 401(k)s also sometimes offer a loan option, like other 401(k)s, but which you cannot get in an IRA, SEP or otherwise.
However, the question of where to open a Solo 401(k) isn't nearly as straightforward. My normal default in questions like these is to go to Vanguard (and I did). However, this decision isn't the “no-brainer” that going to Vanguard usually is. Like the Vanguard brokerage, the Vanguard Solo 401(k) has some issues.
Solo 401(k) Providers
Vanguard
The Vanguard Individual 401(k) offers the Roth 401(k) option and all of the Vanguard mutual funds. However, there is no brokerage option, so buying ETFs, even Vanguard ETFs, and mutual funds from other fund companies isn't an option. You cannot even get Vanguard's less expensive Admiral shares, just the admittedly slightly more expensive investor shares. The Vanguard Individual 401(k) used to not accept incoming IRA rollovers, an important issue if you have a large traditional IRA you would like to rollover to a Solo 401(k) in order to allow Roth IRA contributions through the backdoor. However, in 2021, they started allowing these. There is also no loan option if that is important to you.
Fidelity
The Fidelity Self-Employed 401(k) Plan has a brokerage option (through which you can buy Vanguard and other ETFs) and its low-cost Spartan index funds. However, I have been told it has no Roth option, although the plan document doesn't say that. [Update: Fidelity has confirmed to me that they do not have a Roth option for their individual 401(k).] It does, however, accept incoming rollover IRAs, so this is a great option if you need to do that in order to start doing Backdoor Roth IRAs. Fidelity also offers 401(k) loans. [Update: A reader has assured me that Fidelity most certainly DOES NOT offer 401(k) loans.]
Schwab
The Schwab Individual 401(k) Plan allows you to buy Schwab funds/ETFs for free and Vanguard ETFs for $8.95 per trade. They do not allow loans, but the plan document does state that a Roth option is available. To add to the confusion, the plan document states you CAN take out loans. [Update: A reader called Schwab- the Roth option is not available despite what the plan document says.] It seems to accept 401(k)/403(b)/457 rollovers, but not IRA rollovers. [Update 2/2017: I'm told by readers that Schwab now takes rollovers.]
ETrade
The Etrade Individual 401(k) Plan allows Roth contributions and obviously has a brokerage option with $9.99 trades for any ETF. They accept IRA rollovers and allow for loans. They also will pay you if you transfer your current Solo 401(k) to them, $200 for $25K-$99K, $300 for $100K-$249K, and $600 for a $250K+ plus plan.
TD Ameritrade
The TD Ameritrade Individual 401(k) Plan offers full brokerage services including a number of commission-free ETFs from Vanguard and Ishares. They have less information on the website than the other providers, so I am unsure as to the availability of loans, a Roth option, or whether or not they accept IRA rollovers.
| Vanguard | Fidelity | Schwab | Etrade | TDAmeritrade | |
| Index Funds | Investor Shares | Spartan and ETFs | ETFs | ETFs | ETFs (some commission free) |
| Roth option | Yes | No | No | Yes | ? |
| Loans | No | No | No ? | Yes | ? |
| IRA Rollovers | Yes | Yes | Yes | Yes | ? |
Who Has the Best Solo 401(k)?
There are at least 13 other Solo 401(k) providers, but I'd recommend choosing one of these 5. With recent changes, Vanguard now seems seems like the best overall option to me, but eTrade may be the next best.
If you are looking for more of a self directed 401(k) one option for you could be Rocket Dollar . They administer self-directed Solo 401(k)s and IRAs. Because it’s self-directed, you can buy real estate properties on your own or leverage RE crowdfunding platforms like Equity Multiple, RealtyMogul, Fundrise, Roofstock, CrowdStreet, etc.
What do you think? Where is your Solo 401(k)? Why did you choose that one? Comment below!
@Spiritrider-“An S-Corp is a very bad idea when you have primary W-2 SS wages >= the SS maximum wage base. Because while the employee share (6.24%) is refundable on your personal 1040, the employer share (6.24%) is never recoverable.
The net result is that an S-Corp will pay 9.1% FICA on the shareholder-employee’s W-2 wages, where a sole proprietor will only pay 2.9% SE tax on 92.35% of net profit.”
So 9.1% FICA is 6.2% Employer SStax and 2.9% Medicare tax. But I don’t get 92.35% of net profit. Could you explain? This is what I found online “If you are self-employed, your Social Security tax rate is 12.4 percent and your Medicare tax is 2.9 percent on those same amounts of earnings but you are able to deduct the employer portion.”
They both look very similar. Please elaborate your point.
thanks.
Pran
The only reason you think they look similar is because you are paying yourself an unreasonably low and likely unjustifiable salary. If you were to pay yourself “reasonable compensation”, you would be paying far more in S-Corp FICA than you would in SE Tax.
I supply you with the following snippet from the Reasonable Compensation section of this IRS web page: https://www.irs.gov/businesses/small-businesses-self-employed/s-corporation-compensation-and-medical-insurance-issues
“if most of the gross receipts and profits are associated with the shareholder’s personal services, then most of the profit distribution should be allocated as compensation.”
Also, your S-Corp salary limits your employer contributions. In order to make greater employer contributions you have to pay a greater salary, which makes the S-Corp penalty worse. As your S-Corp income increases this only gets worse and worse.
@Spiritrider- I get your point about S corp taxes. But, as a sole proprietor
One has to pay 12% or so tax on whole income anyway. I guess you can contribute 25% in to solo401k as employer portion and reduce taxable income?
Your second sentence contradicts your first sentence. Are you “sure” you understand the calculation for Self-Employment (SE) taxes?
Once your W-2 SS wages + Applicable SE income exceed the maximum SS wage base, the SE tax “only” includes the 2.9% Medicare component. It is not 15.3% of the whole income.
The maximum employer contribution is 25% of compensation regardless of business entity type, but the calculation is different for the self-employed. It is 20% of net self-employment earnings.
Hello WCI,
This is a very useful post with great comments.
I have a full time w2 job (no 401k or other retirement plans offered at this practice) and also 1099 income from moonlighting (currently using my SSN for the moonlighting jobs). I am thinking about setting up a solo 401k plan and had a quick question on EIN. Can the EIN be used just to setup the solo 401k and still get the 1099 payments on my ssn? will it cause any issues while filing returns?
Thanks for your advice.
No, I’d change your W-9s to your new EIN. Probably not a big deal. Even if some of your paychecks had your SSN on them, just ask that the final 1099 that gets sent to you and the IRS use your EIN.
Should I bother with creating Solo K with roughly 15k of 1099 income? I get w2 income as well, but have a per diem agreement with local hospital for call coverage. I assume it would be 20% of 15k that I get to contribute?
You could just do a SEP-IRA if you’re using your 401(k) employee contribution elsewhere. If you want to do backdoor Roth IRAs you’ll need to convert the SEP-IRA to a Roth IRA every year though.
But you’re right that putting $3K into a solo 401(k) is only like $1K+ off your taxes.
Reading more about it, it may nonetheless be beneficial as I have some 401k rollovers from old employers that I need to move to facilitate a back door Roth. Although, if some of the companies above offer Roth options, what is the utility of doing back door ones?
Because it’s better to invest in Roth than taxable. The Roth IRA is in addition to whatever else you do, not instead of.
I guess I mean, if I open a solo-k with a company that has Roth options, why wouldn’t I choose those as the destination for employee contributions? Income limits don’t apply in that case right? And then do a back door, followed by funding any taxable accounts.
Hi,
I know you can contribute $53000 into your individual 401k if your income as an independent contractor exceeds $250000. If my earnings for the year is less than $250000, can I contribute 25% of my earnings into my individual 401k?
Thank you
It’s $54K and 20%, but yes.
Thank you for your prompt reply. So just to clarify for myself, if my earnings as an independent contractor falls below $250k for the year, then I can contribute up to 20% of my (sub) $250k annual income, right?
Thank you
I don’t recall the rest of your situation so can’t really answer that. This post should answer your question though:
https://www.whitecoatinvestor.com/multiple-401k-rules/
Generally, you get only one $18K employee contribution no matter how many 401(k)s you have, but you can have a 401(k) with a $54K contribution limit for every unrelated business. Employer contributions can be no more than 20% of your net business earnings. Hope that helps.
Hi – Long-time fan of your website. Thank you for providing all of this great info. Have a quick question about solo 401K vs SEP IRA. I see you are a fan of the solo 401K, but my accountant is pushing for a SEP IRA because it has less admin fees, no need to run payroll and no annual filing. Would really appreciate your input, if you are still in favor of a solo 401K given my background.
Here’s my background info:
I’m in my mid 30s, single/no children, make ~300K as a sole proprietor, no employees, live in NYC, don’t have an employee sponsored 401K. I opened a traditional IRA through Vanguard in 2016, otherwise don’t have anything else saved for retirement (I know this is bad!).
You don’t have to run payroll to use a solo 401(k) if it’s just you. Why does your accountant think that? All you need is an EIN. If you’re at Vanguard, the paperwork burden is slightly higher with an individual 401(k), and you have to use investor shares instead of admiral shares with their slightly lower ER, but there aren’t any additional fees. And you get to do a backdoor Roth IRA. Of course to do that you’ll need to open your solo 401(k) somewhere besides Vanguard though in order to do a rollover of your tax-deferred traditional IRA money, like Fidelity or eTrade. Disappointed once more that I have to teach somebody this who has already hired an accountant that should know all this stuff. But this would let you put $6K next year into a Backdoor Roth IRA (plus $5,500 for this year) and $55K into an individual 401(k) for next year ($54K for this year.) If you’re running out of time, you can do the SEP-IRA until next April, but the 401(k) needs to be done by the end of the year. If you want to do a SEP-IRA for this year, no big deal, it’ll just need to be rolled into the solo 401(k) next year.
Such great information! Thank you for everything. Since I am running out of time, I’m going to open a SEP IRA in April and roll it into a solo 401K in 2018. Just to clarify, in order to allow this, can I wait until next year (deadline Dec 31, 2018) to open the solo 401K? And you mentioned, I can also roll my Vanguard traditional IRA from 2016 into the solo 401K in 2018? I have investments at etrade. I guess I can open the solo 401K there unless there is somewhere else you strongly recommend?
Also what’s the best email to reach you to leave WCI bootcamp feedback? You provide so much value and I’d like to give back.
Yes.
Yes.
I think eTrade is fine.
editor (at) whitecoatinvestor.com
We had opened a solo 401k through Fidelity because they accept IRA rollovers, had access to low-cost Fidelity index funds, and other features. However, Fidelity lacked some key features available at other places, like Vanguard:
-No automatic exchanges
This was in place when we switched from Vanguard to Fidelity last year. All investments had to be done through a Cash Reserve cleaning account within the solo 401k
-Automatic investments could only be done MONTHLY, not weekly.
As a work around, had to set up 4 monthly automatic investments.
NOW, some they removed some key features:
-NO automatic invesmtents
This is a new change. Was told they don’t allow this because “the account is low cost and low feature”. Hmm…
So they would expect me to log in every week or month and manually do investments. No thank you! Anyone else have this problem?
Anyone worked out the pass-through implications of this new tax bill for i401k contributions?
If pass-through earnings are now partially deductible, does that function to increase the amount you can get into your i401k, ie will the formula (100% of (first 18k – payroll taxes) + 20% of (subsequent income – payroll taxes)) change at all? Or you’ll just end up with more post-tax dollars?
I think you just end up with more post-tax dollars. I haven’t run the numbers yet, but for some people it may make sense to pay a higher salary (and thus more medicare tax) in order to get a larger pass through deduction.
Question for TurboTax users out there.
It appears that in order to properly enter an individual 401k contribution, you have to upgrade to “Turbo Tax Self-Employed” at a cost of $89.99!?!?
This might seem reasonable if I was using it to manage complex work-expense deductions like home office space, mileage, etc. But just to enter a simple 1-line 401K contribution? Can this be true?
That takes a big bite out of the benefit of the i401k — essentially equivalent to a $90 annual fee for my 401k account……
Why must you use TurboTax then? I pay under $20 for TaxAct and they allow Schedule C and complicated returns and I’ve been paying this for years. Plenty of tax preparing products that don’t rip you off like TurboTax does.
Since we are on TurboTax subject, I thought, I will throw in my question here. I have Service Corporation for part-time independent contractor work. I also have part-time W2 job. Currently, I am paying almost $1200 a year to my CPA for running payroll and separate $400 for filling taxes. He charges me $130 for rental property return. The main reason I am having CPA is because I don’t know what else is out there for payroll and somehow I feel like if taxes are done by CPA, it more full proof and less audit risk.
WCI can you discuss options for doctors like me who are not too keen or savvy to do their payroll or tax themselves? What is your experience with quickbooks or other software for payroll?
Is it worth paying extra for CPA?
I feel like if I get good guidance, I would prefer doing it myself.
Thanks for your great work.
Pran
Why not watch what your CPA is doing for a while and then just do that?
But yes, software can help but you still have to do it.
Hi WCI,
If you don’t mind, can you share how you do bookkeeping and payroll?
Thanks!
Excel and the minimum tax forms for WCI, LLC. The CFO handles it for my practice.
Alright, so here’s a question that was brought up recently and it got me thinking…
A W2 doc with a nice-sized salary (say 275-300k/yr) looking to max out retirement contributions and build as much in Roth status as possible.
1. Maxing out pre-tax contributions to his employer’s 403B at $18,000
2. Maxing out personal, and spousal IRA, then converting yearly to Roth at $11,000
3. Maxing out HSA contribution at $6,750
To take advantage of the solo 401k… could he get set up as a sole proprietor then…
1. Start a small side business that made only say $1,000 a year
2. Open a Vanguard solo 401k
3. Fund that with employer contribution of a % the $1,000 the business makes per year
4. Fund the remainder with “after-tax” contributions made by the employee with money left over from his W2 job to increase his roth?
Thanks for the help. This website is incredible. Every resident that rotates through my office gets a copy of your book.
You would likely need a customized solo 401(k) rather than the standard Vanguard 401(k) to get after-tax contributions.
Hi, I’m switching my i401k from Vanguard to E*trade. With Vanguard, they list themselves as Directed Trustee. The E*trade applications says to select one of the following: Financial organization as trustee, individual trustee, or N/A: trustee not required (plan covers one or more self-employed individuals). The E*trade guy I spoke with said not to put them as trustee because they don’t do that (why is it on the form then??). Should I put myself or my S-Corp as trustee? I believe I’m not considered self-employed since I’m an employee of my own S-Corp, right? Then, do I choose directed trustee or discretionary trustee? Thanks for any help!
As the owner of the S Corp I think you’re the trustee. But I don’t know the difference between directed trustee and discretionary trustee. Just based on the words, I would assume the directed trustee is told what to do, presumably by the investor and the discretionary trustee is allowed to invest the funds at his discretion. I’d probably choose myself/the S Corp as the trustee and choose directed since myself/the employee is doing the directing.
But as you know, mine is at Vanguard. I’ve never filled out the eTrade paperwork and Vanguard didn’t ask that question.
I am just now researching 401(k) solo/self-employed plans because (as my wife puts it), I am flunking retirement. So, my knowledge is far from complete. As I read the IRS Pub 560 and other stuff on the web for what that’s worth, the IRS has blessed companies with “model” i-401k plan documents which it will accept without question. Some of these companies will give them away if you do business with them (etrade, vanguard, fidelity), some will sell them (mysolo401k) for a price, and they come with an IRS approval letter. I suspect that’s why etrade documents have what they have in them.
But, you can also write your own if you’re brave. The plan must be in writing, must meet the IRS requirements specifically and not just cite IRS rules. This means that all the plan’s provisions must be included. For example, my last employer’s 401(k) plan has a couple of unusual provisions: If you are not working for them on the date you turn 65, you must cash out within 90 days, either as a lump sum (taxable) or a roll-over.
If you want to write your own plan, you do not need prior IRS approval, but you can get it for a fee if you are a large employer, or you can get it for free if you have less than 100 employees. (1 is less than 100). It’s always safer to get IRS approval, especially if it doesn’t cost anything.
Etrade has, from what I’ve seen in my brief excursion into this area, by far the most comprehensive and flexible documents from available from established houses.
From what I’ve read, all 401k plans require a trustee of some kind. I cannot find an IRS reference that says you don’t need one, but I also can’t find a reference in 560 that says you do in an individual QRP (ie i-401k). My thoughts are that the last option for LLC/solo (disregarded entity) or self-employed can use the last choice.
My present thoughts are:
1. I Am planning to use etrade, because it allows me to roll over my former employer’s 401k which has both pre-tax and Roth components, comes with annual fees, and I have to get out in a few years anyway.
2. I have far more most-retirement 1099 income than I ever expected, don’t need the cash and won’t for quite a while.
3. I have a large pot of post-tax funds if ever needed.
4. It allows me to take the LLC funds (sole-partner/disregarded entity) as pass through income, pay the ss.mc taxes and fund the i-401k from there.
5. My initial contribution will be to the pre-tax component and hope I will be smart enough to stay retired next year, or at least limit them!
6. Next year, I will roll over the former employer’s funds (pre-tax to the pre-tax i-401k and the Roth 401k to the Roth 401k side.)
7. I will then continue pre-tax to Roth conversions until I cap out at 70.5 paying taxes on my new and greatly reduced post-“retirement” marginal rates.
The commissions etrade will charge me are far below what the present fee happy folks holding my employee 401k offer me, and the present funds are available in the etrade account.
Flunking retirement, I love it!
That is brave to write your own 401(k) plan.
The only good reason I can think of for rolling my own is this: I hold a mortgage on a family member’s property. This family member got themselves into a pickle during the crash, but for a variety of very good reasons, it served my greater family needs to keep them from foreclosure, so I bought the mortgage from the bad bank and the robo-signer foreclosure mill some years ago. The mortgage is fully perfected (drafted by a real-estate attorney, recorded, and secured (first mortgage) by property worth more than the balance), and there are regular payments made, to keep both them and me clear of the IRS Applicable Federal Rate minimums.
Right now, the interest on this is taxable income to me, and tax deductible to them. I am looking into the possibility of using some of the i401k Roth Plan funds to purchase this mortgage note (from me) at whatever its appraised market value is, and then including it in the portfolio.
The IRS has certain very strict disallowed transactions (parent-child, child-parent, etc), but this transaction doesn’t appear to be one of them. Obviously with this type of transaction it has to be arms length and the lawyers who will be blessing my plans will have to say, yes, this is ok to do or I’ll just keep the note as an after tax note and pay taxes on the interest as it is paid, but I’m already going to have a bigger tax problem in retirement than I ever imagined, which is why I thought I’d have zero Sched C/W2 income for a few years to help with this, but that hasn’t happened…
The detailed list of prohibited transactions on the i401k include:
–Real estate that you intend to occupy — ie your home or a place you plan to occupy like the condo in Vail.
–An apartment building or house you buy in you kids college town to lease to them while they attend univ.
–Private shares in a private (non-publicly traded) company that you or a disqualified person own.
–loans to a disqualified person (lineal descendant). doesn’t appear to exclude aunts/uncles
–straw transactions (you loan Uncle Tony $10k at 8% and he in turn loans it to your daughter (= tax evasion)
–collectables are not allowed (you can’t buy your rare coin/stamps/art/Persian rugs with plan money)
–Disqualified persons: parent/grandparent/child/grandchild
…and wait…there’s more…just ask the IRS….But it basically boils down to this: As a QRP trustee, you do have a fiduciary responsibility to act in your retirement plan’s best interest.
I’ll likely go with the Etrade because of its flexibility and keep the mortgage separate (and pay tax on it) as I am not that brave, or pay the my401k folks their $800 setup fee and the annual charges and do much the same. In their case, you set up a checking account(or two if you are going to have a Roth and Taxable component) at any bank in the name of the “Plan” which has a separate tax id #, naming yourself as the trustee for the plan accounts. Then you, as trustee with fiduciary care, purchase investments for the plan just like any other trustee except you can’t make any disallowed transactions. From there it becomes a minor pain, because you have to have meticulous record keeping including the 5500-EZ, and any distributions you take. All of this has to be on the 1099R and done correctly.
Some collectibles can be bought in an IRA:
https://www.forbes.com/sites/greatspeculations/2016/09/07/buying-gold-coins-in-an-ira-creates-possession-issues/#79a6fd582101
Using your i401K in to purchase a mortgage note that you personally own would definitely be a prohibited transaction: https://www.401kcheckbook.com/checkbook-control-retirement-compliance/self-directed-prohibited-transactions/
I was pretty sure that would be the case. Thanks for the link/info. I’m going with the regular etrade boilerplate and will leave the other stuff where it is. After calculating the tax savings and thinking about the amount of additional paperwork involved, I had tentatively decided against a “checkbook” i-401k.
I opened a solo 401k with fidelity as it allowed rollovers from my 403b and 401k from residency. Figuring out how to purchase the total stock market index. Thoughts on vanguard VTI or fidelity total stock market index fund premium class. Both have similar expense ratios? Are they comparable in performance? They are obviously different companies and investment vehicles. The admiral shares VTSAX are not available through fidelity as far as I can tell.
If you’re at Fidelity, just buy the Fidelity one. It’s fine.
Hi! Just wanted to confirm that I can do this…Have an LLC, started with a traditional IRA in Vanguard in 2016 and have some investments at Etrade. Looking to open a SEP IRA at Etrade before the April 15, 2018.
Does it make sense to open the SEP IRA at Etrade since my other investments are there vs opening it at Fidelity?
Can I open the SEP IRA at Etrade and then open a solo 401K at Etrade to have the SEP roll over? Then, can I roll over the traditional IRA from Vanguard into the 401K at Etrade?
Why can’t I open a SEP IRA this year, hold it, and roll it over into a 401K in 2019? This all has to be completed by Dec 31, 2018?
Thank you so much!
I think so, but double check with eTrade before doing it.
Same.
You could, it just puts off the ability to do the conversion step for the Backdoor Roth IRA.
I have a 9-5 job where I contribute fully to 401k and also alittle bit to Traditional IRA due to income phase
Wife is a sit home mom contributing 5,500 to Traditional IRA only.
I also have side job (sole prop) where I will be making 50K net profit this year. Up until now, I always contributed to SEP IRA not knowing about the Qualified Joint Venture and making my wife a partner in the business and her ability to contribute 18,500 to solo 401k plus the company contribution. So I am planning to open a solo 401k for her as soon as possible.
1) If she contributes to solo 401k 18,500 plus the company contribution, can I still contribute to SEP IRA? If so how much?
2) I might be wrong but is there a rule that both partners should receive the same % of partner income as company contribution? So to maximize the tax deferred savings how do we go about this?
3) Does employer contribution have to be in pre-tax dollars?
Regarding your questions, please see corresponding numbered responses:
1) What would be the purpose of having both a Solo 401k and a SEP-IRA? You could participate in the same Solo 401k Plan as your wife and employer-profit sharing contributions that are equal to what would be available through a SEP. Maxing out your employer-sponsored 401k precludes you from making additional employee salary deferral contributions to another 401k plan, but does not preclude receiving profit-sharing contributions from a plan sponsored by another business.
2) For administrative ease, it’s best to use a pro rata allocation of employer-profit sharing contributions, which means applying the same profit-sharing percentage to each participant’s “wages” or “net income from self-employment” to arrive at the employer profit-share contribution amount.
3) Employer contribution is pre-tax. However, if allowed by the plan the “employee” can elect to convert the funds to Roth. If you’re objective is Roth, than employer profit-sharing can be disregarded and employee non-deductible after-tax contributions can be made up to the overall plan limits and subsequently converted to Roth funds – a.k.a. Mega Backdoor Roth, regarding which there’s extensive info on The White Coat Investor: https://www.whitecoatinvestor.com/the-mega-backdoor-roth-ira/
The foregoing info, including many code citations, are from :
https://www.401kcheckbook.com/checkbook-control-retirement-learning-center/defined-contribution-plans/
https://www.401kcheckbook.com/roth-solo-401k-contribution-guide/
https://www.401kcheckbook.com/solo-401k-roth-contribution-faq/
Can I change the % allocation between partners every year or it is set only beginning for once?
You mean partners in a partnership or an LLC taxed as a partnership? I think it just comes down the partnership/LLC agreement.
Sorry I meant to say the percent allocation between partners in a Qualified Joint Venture.
The Tax Code (Section 761) requires that “all items of income, gain, loss, deduction, and credit shall be divided between the spouses in accordance with their respective interests in the venture.” The IRS uses the same language in its guidance: https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses
If the “interests in the venture” change each year, then the percent allocation would follow that change.
Here’s something from the IRS on QJVs: https://www.irs.gov/businesses/small-businesses-self-employed/election-for-married-couples-unincorporated-businesses
It doesn’t specifically answer your question, but I would assume that yes, you can change the percentages each year. Might want to run that one by a CPA that deals with these a lot though.
Great article and saw a similar one a little more recent saying something similar (https://thecollegeinvestor.com/18174/comparing-the-most-popular-solo-401k-options/). WCI, which one of these did you personally choose and why? (Didn’t see if you ever mentioned that in any of these comments or posts…though I did read through many but not all of the 477 comments on this article ;).
Ours is at Vanguard. While we’d like to have admiral funds, it has all the features we’ve needed so far and it is easy to manage given we already have other accounts at Vanguard.
An update: I decided to go with Etrade. Step 1 opening the standard (pre-tax) 401k went smoothly. Very smoothly in fact. Took about a week to get it opened and it was opened before I knew it. So far, so good.
The problem is the Roth side. I got a call from Etrade saying there was a problem with the form for the 401k, one of the problems was I didn’t specify an employer. As a SE-401k that got my attention. I’m structured as an unicorporated pass through and file schedule C, so I am the employer, the cook, the bottlewasher. Also on the 401k-Roth, they want this to be an Amended Plan, so check that box. After 3 weeks of back and fourth, multiple attempts to follow mis-instructions, I finally got the forms to them. Today, I get a message saying my forms were obsolete because they were 0218 forms and on Friday, last they updated their forms and they could only accept the new 0518 forms even though we were going back and forth on this for over a month. I’ve given them until Friday to get this solved or I’m rolling my own. We have completely filled these forms out four times now, and have to do it again. I’m wondering if they get better once the account is open. Any insight?
Thanks for sharing your experience. When they ask about the employer, give the name of the business and its EIN- no big deal.
The business has an EIN, which was given. The name of the LLC was given. The big deal is that we have been going round and round with them for going on 6 weeks to get the Roth side set up. Every time I jump through a hoop, they seem to create a new hoop. After spending hours on the phone, hours downloading, completing, finding a witness, digitizing forms, only to find out their upload does not permit more than a few pages, mailing the forms, only to find a week later that something else has changed worries me. If it’s like this on the front end, what will the back end be like? The problems seem to arise from structural systems and administrative decisions at etrade. I’m sure they can be worked out, but there is a December 31 deadline looming (said only slightly tongue in cheek). The latest hoop is a form change done on the very day they told me to send in the present form in a different way.
I get that you’re getting the runaround. I was merely commenting on the fact that giving them the business name shouldn’t be a big deal, it should be expected.
At any rate, if you don’t need the features eTrade offers that others like Vanguard and Fidelity don’t, you can go there and from what you describe, enjoy an easier customer service experience. FWIW – Cindy, my assistant, has her and her husband’s i401(k)s at eTrade and had none of the issues you’re running into.
Sorry to hear about your experience Walter. I use Etrade and haven’t had any problems with them. Had great experience with their customer service and seamless/easy set up of my 401k and Roth 401k accounts. I also have some of $$ in Vanguard Funds, Admiral class shares . . . although maybe not so important any more with their ETF line available.
I’m hopeful that we can get this where it needs to be. Unfortunately, Vanguard does not permit 401(k) from former employer rollovers. Fidelity does, but does not offer Roth 401(k). I have post-tax accounts at both. My pre-retirement account had an in-plan Roth conversion feature that permitted me convert and pay taxes outside the plan. I formally retired 2 years ago, but I will eventually, sooner than later run into an RMD issue.
So…the plan was/is:
Live on cash savings for 4 years…check.
Convert chunks of pre-tax 401(k) funds to Roth 401k funds and pay a much, much lower state and federal tax rate on those chunks,
–timing the conversions at market “dips” more or less, nothing crazy, to maximize conversion at minimum taxable events. up to 4 /year. Check.
–repeat until mandatory age caps start kicking in. This plan is now delayed for this year since I can’t seem to say no to locums.
This should move a substantial amount of funds from RMD to Roth, and minimize taxes paid on previously deferred in high tax years.
At age 70 take the RMDs and supplement with post-tax as needed.
The only flaw I’ve found is that in retirement, I can’t seem to say no to the locums recruiters, so the “low income years” are turning out not to be so low, hence, the need for the SE-401k. My plan is to move the old employer’s 401k and my prior university accounts into the SE-401k/SE-401kRoth including previously converted funds. So, I need both and the ability to roll over the funds. Etrade or one of the “checkbook” outfits appear to be the only ones that fit the bill.
I have zero pre-tax IRA funds, so the Roth BackDoor IRA is still open, but won’t be if I roll over the old 401k into IRAs. It’s actually a nice problem to have, but it is frustrating when things don’t move smoothly along. My present plan is that since I don’t need any income right now to put everything possible in the pre-tax SE-401k for this year, then roll over the older 401k/401k Roth components as soon as I’m satisfied with Etrade, and next year continue my original plan (unless as my wife puts it, I continue to flunk Retirement). It is encouraging to hear that once the deal is done that it works well. I will persist a little while longer and see what develops.
You have an interesting definition of retirement. I’m calling the internet retirement police.
https://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-vs-the-internet-retirement-police/