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!
Great thread, really appreciate the helpful info!
Quick question I was hoping to get clarification on – Currently I’m an employed physician and have an employer-based 401k and 457b, both of which I am contributing the max of $19.5k per year.
I started consulting work for pharmaceutical companies and will likely make approx $20-30k this year, with further growth over the coming years. Is $19.5k the max I can put into a solo 401k from my consulting work (assuming I make at least $19.5k or more), or can you only put a certain % of overall consulting earnings into the solo 401k?
Thanks!
No, $57K is the max, but you can only put in 20% of net self-employment income since you used your employee contribution at your main gig. More details here:
https://www.whitecoatinvestor.com/multiple-401k-rules/
As a background I am a 1099. In my group we get a big annual bonus in February based on profits brought in by the group during the year. The last 2 years I have been maxing out my 401k all at once in one big payment. With this Bear market I’m wondering if this is the right way to go? I feel like I might be timing the market. I had the funds ready in March, but held off investing it.
Would your recommendation be to put all the money in at once like I have been?
Better to just make a monthly contribution so I’m putting money in with as the market is fluctuating?
It doesn’t matter?
Thanks again!
Clearly you should invest it all on March 23rd! Or whenever the second deeper nadir turns out to be.
I didn’t think I was smart enough to time the market before. I don’t think I’m smart enough to time it now.
Buy and hold, dollar cost averaging, and minimize costs — nothing has made those less wise in my book.
I stay fully invested all the time so I never have to think about questions like this. It’s also the right answer most of the time.
https://www.whitecoatinvestor.com/dollar-cost-averaging-is-for-wimps/
Hah, interesting semantic point. Never made that distinction before.
I subscribe to your principle, I guess periodic investing is what I mean. Sadly, I rarely have to ponder the question of what to do with a very large lump sum of money.
ETRADE RED FLAG
Today I tried to make two transactions via the ETRADE ACH funds transfer which has worked well in the past.
1. Transfer $26000 from my bank account to the ETRADE solo401k account. I rejected the transaction because it claims it exceeded the contribution limit (It says). I was able to transfer $25,500. which is $500 less than the IRS limits.
2. Transfer $5000 to the 2019 as employer profit sharing top off to the IRS limit for 2019. It reject this transaction.
Etrade says they made this change due to customer requests.
They will not pay for wire transfers but are “willing to make a one time accommodation.” They are not specific what that will be and it creates for me at least a bunch of problems.
I wonder if we are seeing the fruits of the buyout already?
WCI, opinions on the best place to go to a checkbook solo401k would be appreciated.
Recommended folks can be found here:
https://www.whitecoatinvestor.com/retirementaccounts/
As of this time, it appears that ETRADE solo 401(k) ACH transfer contributions whether originated from ETrade or originated at the funding bank cannot be properly credited. ETrade’s system rejects them once the limit of $25,500 is reached (even though the IRS limit is $26000 for those over 50 in employee deferred compensation.
Employer PS contribution simply cannot be applied electronically and will require a check and a minimum of 15 days to credit broken down as Check hold: 10 days, deposit on the 11th day. Time to settle and be available: 3 days.
I tried setting up a brokerage account (non-retirement) which will allow deposits via ACH which appear at the time of transfer but then the funds are locked up for 5 business days before they can be transferred to the 401k account and will require a telephone call and a letter uploaded.
Etrade has moved from the 21st Century to the 19th Century banking models.
I have been told that ETRADE is starting to understand its folly but it is not clear that it will fix the mess it just created. I am very concerned that this change was not announced and ETRADE chose to blind side customers.
This brings up a concern for procrastinators: The IRS rules require the final 2019 deposit be made on the day the Schedule C/Business tax return is due (plus any extensions) or this year October 15. The question now is when is the contribution deemed made? The day the check is written and posted, or the day that ETRADE finally credits the account?
After having a SEP IRA for years, I have finally decided to open up a Solo 401k, however Vanguard doesn’t allow that?
I read somewhere that I would need to first, rollover the SEP IRA from Vanguard to a SEP IRA at Fidelity.
Then I can roll the SEP IRA to a Solo 401k at Fidelity. And if I wanted to keep everything in Vanguard, could I rollover the Solo 401k back to Vanguard. Is this correct? Why is this so complicated? haha
Thank you!
Yes they allow it, they just don’t allow an IRA rollover into it.
I think you could skip the SEP-IRA step at Fidelity and just roll the Vanguard SEP-IRA directly into a solo 401(k) at Fidelity.
Jim.
Question related to solo 401k.
Recently stopped working an employed position and started Locums .
I understand I qualify for Solo 401k as IC.
I will have an additional non related business as well where I will be partner and have employees.
Does that situation still make me eligible to open a solo 401k as IC ?. My accountant says yes.
Not if you have employees. You need a “real” 401(k) in that situation. Same issue we’re dealing with this year at WCI as we transition from a solo 401k to a real one as our contractors become employees.
Like most CPAs and other accountants, yours is not well versed in 401k plan compliance. Specifically in this case, Controlled and Affiliated Service Group rules.
A partner in a Partnership (regardless of the percentage interest it owns in the Partnership) who “regularly performs services for the Partnership”, subject to facts and circumstances is very likely part of an Affiliated Service Group.
If you are part of an Affiliated Service Group, the Partnership and your business are considered one employer for employer retirement plan purposes. Therefore, you cannot adopt and contribute to a one-participant 401k or any other employer retirement plan.
This is an extremely complex part of the Internal Revenue Code, IRS rules and regulations. You should not rely on an accountant even a CPA for advice on this. The Partnership likely has a third party administrator for their 401k plan. They/you should get advice from their TPA and/or an ERISA lawyer.
The Partnership has a vested interest in this issue, because if you were to adopt a one-participant 401k and make contributions, they as part of an Affiliated Service Group could be subject to 401k plan anti-discrimination sanctions. A one-participant 401k is not just a bigger IRA. It is a full-fledged 401k plan subject to the vast majority of 401k rules and regulations.
SPRITRIDER,
Thanks for providing some info.
I did look at IRS publication concerning Controlled and Affiliated Service Groups . I was able to follow at first then a Major in Chinese language is required.
To clarify
I’m 100% owner of Independent contractor working as locum tenens physician and provide services for hospitals.
I’will be 50 % partner in a bakery. It is currently a small operation and has no benefit plan. I understand I will have some management tasks but none of it is medically related or require a medical license or involve the services of the IC.
No related services between the 2 business.
I tried to find examples to illustrate the situation but was not able to find any. I understand the rules were meant to avoid some smart individuals try not to provide benefits by playing with ownership share between two or more companies or performing similar tasks or services or sharing customers by dividing entities and try to claim no employees.
Thanks for your time. Just if you don’t mind sharing your line of business not sure if you are a doc or not.
Less than 80% on that second business you should be good.
The 80% ownership requirement only applies to a Parent – Subsidy in a Controlled Group. Since the OP only has a 50% ownership in the Partnership, they are Not in a Controlled Group.
However, as I pointed out earlier:
“A partner in a Partnership (regardless of the percentage interest it owns in the Partnership) who “regularly performs services for the Partnership”, subject to facts and circumstances is very likely part of an Affiliated Service Group.”
I think we’re in agreement.
This is a common misconception. The fact that your Partnership is a separate line of business (SLOB) is not relevant in your circumstances. With an Affiliated Service Group all SLOBs regardless of size are considered one employer for employer retirement plan purposes.
Even if you were in a Controlled Group with the partnership (which you are not). Only a “qualified” SLOB (QSLOB) would allow you to adopt a one-participant 401k. Only SLOBs with >= 50 employees can even begin to meet the requirements for QSLOB status.
There is no requirement for any nexus between your business and the partnership to be considered an Affiliated Service Group.
Hi,
I love this site and have been reading the posts.
I have a full time job and contribute to a 401k. My company doesn’t accept IRA rollovers; only other 401k, 403b. I have a TIRA with Merrill Edge right now. I would like to do a backdoor roth since my income is over the contribution limit.
From reading the post, can you confirm the following?
1. I need to obtain an EIN
2. I need to open an i401k (I have no side income and don’t plan on any, this is okay?)
3. Rollover my TIRA (I see people are saying Etrade or Fidelity, is this right?)
4. Contribute to a non-deductible IRA then rollover into i401k (does this need to be done in the same year)? since 2020 IRA contributions can be made through April 2021
5. If my i401k amount reaches 250k or more at some point, I need to fill a 5500. Since I will be opening an i401k for backdoor roth and will not have any income, is the 5500 filing for my personal or sole prop tax filing?
6. My job’s 401k plan doesn’t accept IRA rollovers; only other 401k, 403b. So in theory, I could open the i401k and then roll into my company. Any advantages/disadvantages with rolling in versus keeping separate?
Thank you for your help in advance.
1. You need an EIN to open a solo 401(k)
2. No, that’s not okay. You need a business to open a 401k. Alternatively, you could just convert the tIRA to a rIRA and pay the taxes due. Or just not do Backdoor Roths. Sucks that your 401k has that dumb rule. That’s a plan thing, not an IRS thing.
3. See 2
4. See 2
5. The business files the 5500.
6. See 2
Thanks. How would 3, 4, and 6 change if I have a business in the future?
I agree on 2. I did reach out to my HR that manages benefits and they said they would review this. I took it as a no to changing the plan to allow IRA roll ins to their plan.
For 5, I would file my personal tax filings including the sole prop income and separately, submit a business filing with the 5500, correct?
Thanks. How would 3, 4, and 6 change if I have a business in the future?
I agree on 2. I did reach out to my HR that manages benefits and they said they would review this. I took it as a no to changing the plan to allow IRA roll ins to their plan.
For 5, I would file my personal tax filings including the sole prop income and separately, submit a business filing with the 5500, correct?
If you have a business you can open a solo 401(k) for it and if the 401(k) allows, you can roll a traditional IRA in there and start doing Backdoor Roth IRAs.
No, your business would file form 5500. It’s not part of an income tax return.
Non-physician, solo practitioner here whose only source of income is private practice. Your site has been of great help to me. Thank you for what you do. Want to make sure I have the most current info, as there is much conflicting info online. I have a SEP IRA through a bank. Income has gone up, and I’d like to open a solo 401k as well, probably through Vanguard, to be able to exceed allowable limit on SEP IRA contribution (which is below theoretical max because income is below $200+k). Can I contribute to both the SEP IRA and the solo 401k in the same year as long as combined contribution does not exceed IRS limit? If yes, are both fully tax-deferred? I know most would say just to fund the 401k, but I like having the SEP professionally managed. I assume in either event that I can maintain both accounts. Is that accurate? Some say the legality of contributing to both hinges on whether the SEP IRA was opened with a 5305 form. Sincere thanks for your help.
Yes I think you technically can, though most advise against it due to hassle and audit potential. As a general rule, most businesses just use one retirement plan per year. The solo 401(k) includes an employee contribution. I hope you’ve seen this post:
https://www.whitecoatinvestor.com/multiple-401k-rules/
You can have your solo 401(k) professionally managed if you like.
First time I’ve seen 5305. Certainly didn’t use that when I had a SEP-IRA and I had a 401(k) at the same time.
Hi, I am trying to open a solo 401K with TD Ameritrade. There is a section on Retirement Topics – Qualified Pre-Retirement Survivor Annuity (QPSA). It says if I pass away before my retirement, the money will be converted to an annuity for my spouse instead of a lump sum payout.
My instinct is to waive off that requirement so my spouse can take a lump sum payout. I am not a fan of annuity as it feels like you are throwing away unused portion of the annuity if you die early.
But is my thinking correct? Greatly appreciate any insights. Thank you.
I would do the same.
Any updates to this post?
Is E trade still the best place for 401K?
Looking for a individual 401K that I can:
1) Roll over an old 401K into
2) transfer money via ACH from my business bank account into the i401K
Thanks!
I’ve had some complaints about service there. I know Fidelity can meet those two needs. If you want a self-directed account, you can look into these options:
https://www.whitecoatinvestor.com/retirementaccounts/
I have the same q. Currently on tdAmeritrade and it sucks to send a check each time.
Vanguard i401k is accepting traditional (non-Roth) rollovers.
Just got off the phone with a 2nd-level Vanguard i401k advisor. He is emailing me instructions, but per him this is a new process. Old 401k plan cuts check and mails it to me, and I forward that to Vanguard with clear instructions to roll over into i401k.
This was the main Vanguard sticking point since I wanted Roth and e-funding ACH payment options, but also had a small 401k that I wanted to roll-in. Didn’t care about loans or checkbook.
Yes, it happened in the last few weeks.
Though apparently two downsides:
1) mutual funds only, no ETFs, no stocks.
2) $20 account fee per fund you invest in, though they will waive that if you are already a Flagship Select®, Flagship®, Voyager Select®, or Voyager® account holder with other (non-i401k) assets.
Etrade has fixed its deposit limitations, I think.
They did correct a 1099R for my In-Plan pretax to Roth conversion. They originally listed it as a tax free transaction which of course it was not. I spoke with the IRS about this and told them the 1099R was wrong and it was indeed a taxable transaction and I had not received a corrected 1099R. While this could cause issues downstream, the taxes on the transaction were paid, timely and the transaction was properly recorded. The IRS agent said he would address the issue with ETrade and I need do nothing further. I’m sure this affects others who have a 401k/roth401k with the in-plan conversion feature.
Note that this feature was an extra step and I’m not sure they were that familiar with it when I originally set it up.
Because of the earlier issues I decided to set up a Restated i401(k) plan. It’s a bit of a pain and more work, but for me it’ll work out well.
Here’s what I did:
I contracted with Ascensus of Brainerd, MN to use their plan prototype and update services. The up front cost is low, and they keep track of the revisions to the plan required by the IRS. It is a true Checkbook plan.
I set up a trust with its own EIN to manage the plan. Everything in retirement funds is now associated with that trust, I am the trustee.
I opened the following accounts:
Schwab Corporate Retirement Accounts in the name of the Trust/trust EIN:
1 me: 401(k) restated pretax
2 me: roth401(k) restated post tax
3 spouse-W2employee: 401(k) restated pretax
4 spouse-W2employee: roth401(k) restated post tax
5 master account to receive and disburse funds (everything inbound or outbound routes through this account. Mostly the balance is zero except for transient activity)
I also opened a Vanguard Pooled Retirement Account in the name of the Trust with the Trust EIN.
This allows me to purchase the VG funds I want. VG only allows one of these accounts per EIN so you will have to do some book keeping to make very sure the income (Divs/Gains) is parceled between spouse and self properly. So far this has worked.
Next, I will be transferring in-kind property from my old 401k into the Schwab accounts which will permit me to retain the funds I presently have which were in-kind transferred from my old W2 job 401k to my first i401k and now soon to the Schwab accounts set up for this purpose.
Schwab is not as convenient as Etrade, and presumably ETRADE learned their lesson, but I started the new process when it appeared that they had not and were not going to change and I lost a huge opportunity when they made that change right during the peak of the COVID dip . We’ll see what happens now that I’m committed to this course.
Hi there – I have been calling around asking the usual suspect brokerage firms of whether they have the feature of an in-plan Roth conversion. Is anyone using this or aware of a brokerage that does this?
I’m specifically asking about after tax dollars (not Roth contributions) that are converted to a Roth within a plan. This is a huge advantage if you are already hitting the limit on deferral or Roth contributions. It prevents all the gains with your after tax dollars from being taxed from the get go.
The only place I can find as of April 2021 is mysolo401k. If anyone has experience with this 3rd party, please let me know. Apparently Fidelity accepts a 3rd party plan documents to perform this feature however you need to pay the 3rd party for their plan.
If you design your own 401k, it’s easy to put that feature in place. But it’s not necessarily available with off the shelf solo 401ks at Vanguard, Schwab, Fidelity etc.
I have experience (all good) with that particular company. And yes, it will cost you something.
I have done something close to this with ETrade. A lot of times they don’t even know they do it. You have to ask for it specifically. The rep I worked with was out of Minneapolis and has since left the company. Essentially, at least when I opened the account there, their 401k plan and documents had a supplemental sheet for the in-plan conversion.
There is a cap on contributions to 401k plans, which is around 26k (over 50) for individual deferment and 65k +/- total (including the deferment). You can directly contribute after tax into the Roth 401k but I’m not sure you can contribute after tax money into the pre-tax account. You need FICA taxable income in at least the amount you contribute. Since my contributions occur in high tax bracket years, I put money into the pre-tax and then roll them in low tax bracket years to top out the bracket, or the next bracket up. I pay all taxes outside of plan with current assets.
One thing to be aware of is the Roth 401k component is a.) subject to RMDs when they roll around, and b.) can be rolled into your Roth IRA but they are locked for 5 years for each rollover event is my understanding. Once they are in the Roth IRA, they are no longer subject to RMDs.
Thanks for the reply. Great to know E*Trade may do an in-plan conversion. Any changes to your account with the Morgan Stanley acquisition?
I called Fidelity, Vanguard, Charles Schwab, and TD today and was put on hold for inordinate amounts of time as they tried to find a rep from a call center who could tell me if they offer an in-plan conversion. Only the Vanguard guy seemed to know what I was asking from the outset and said a categorical No.
The reason I ask is because I am maxing my deferral limit $19,500 with an employer 401k. To me, the only way a solo 401k would be beneficial is if I can contribute after tax dollars that can be converted to a Roth. Otherwise, it’s the exact same as contributing to a taxable brokerage.
The other work around is you can try to take an in-service withdrawal for the after tax contributions and immediately roll into an IRA as you mentioned. Do you know if E*Trade allows in-service withdrawals from their solo 401(k)s?
Eventually I would do that for the reasons you specify however you still have to pay tax on the gains incurred before the withdrawal, which is why the in-plan conversion is so seamless.
I wrote a blog post on this for an employer 401(k) and am working on one with my experience trying a solo 401(k) as well. Thanks for the discussion.
If anything MS has improved my account service at Etrade. They rescinded the $25,500 limitation on i401k contributions. As I had already created my own 401k independently, I have not done much with this account. It met most of my needs, and those it did not were not important enough to worry about. If they had not made bad systems/management decisions at the worst possible time ie covid crash and at the end of the tax year which blocked payments I’d probably still be with them without a second thought. Who knows? I may go back to them. The main difference now is I can buy VG funds only open to VG accounts, Fidelity funds at Fidelity saving purchase commissions, and so on and have trust accounts set up with each of them.
The absolute limit on contributions is set by the IRS. I’m pretty sure you can contribute directly into the Roth side of the house and the dollars, by definition would not be deductible. I haven’t done this. The path I chose to make was to contribute pre-tax dollars all to the pre-tax side and then when taxable income and market conditions were favorable I’d do the in-plan conversion and take the 1099R. Etrade will produce a 1099R for this type of transaction. I didn’t usually do this in the same year as I wanted to reduce my taxable income unless there were very favorable market conditions in a high income year.
For example, at the covid crash, I moved a bunch of pre-tax money into Roth and took the hit on the 2020 1099R for the conversion. I’ll pay top dollar taxes on that conversion this year because I got an unforeseen bonus in December, 2020, but I converted at a steep discount and the market bottom so a lot more money was effectively moved when the market rebounded. e.g. Market tanks, move $25k from pre-tax to Roth with conversion, get 1099R @ $25k taxable income. Marginal rate is 35%, so I owe 8.75k tax. The Roth transfer then rebounded with the market to its baseline and that $25k became $37k, a gain of 47% untaxed. So, my effective tax rate was 23+%
My more typical will be next year if I actually do retire, I will be in the 12% bracket for a couple of years. During this time, I will move more to bring me up to the 22% bracket, pay those taxes out of plan and substantially reduce my pre-tax assets all earned in the 35-39% years but tax deferred.
This step will not help me with my RMD problem as 401k assets both pre- and Roth- are covered under RMD, but it will allow me to Roll over the Roth funds into an IRA and after a 5 year delay, I can take those funds tax free as I need them. Once they are safely tucked into an IRA, there is no RMD on these funds.
I too have heard very good things about mysolo401k and have listened to a number of lectures, all very informative.
Very helpful thread and thank you to everyone who has contributed.
Based on a recent phone call I had with VG, they now allow admiral funds in the solo 401k / individual 401k as long as the fund’s minimum contribution is 3k. If the min contribution is 50k, then, as stated previously, they will only allow you to purchase the investor funds. Many funds fall into the 3k min category, such as VTSAX, VTIAX, VFWAX, VSIAX, VEMAX, VGSLX and more.
This is very helpful, thank you. I was having a hard time finding this information on Vanguard’s website. Their individual 401k page lists that they offer many funds with Admiral shares, but I couldn’t find which funds specifically.
Thanks to everyone who posted on this thread. Vanguard has limitations in terms of investments. I recommend E*Trade for solo 401(k) in my blog post, which reviewed all of the usual suspect brokerage firms:
https://millennialmusingsonmoney.com/solo-401k/
Not only does E*Trade afford you many investment options, but it also allows for the fantastic in-plan Roth conversion, which will provide tax savings over time.
Perused through some of the comments, but I’ve got a question I’d like to still pose to the group:
I’m a resident who’s moonlighting a bit (annual about $20K) and looking to open a solo 401K to put some $ in. I know nothing about investment profiles, and I’m not sure I have the mind for it to really teach myself (at least not right now).
What’s the best company to open an account with if I want a solid hands-off account? Is it worth it? Or is there a better option/suggestion? Remainder is going towards bills/loans, and a graduation trailer camper tour of the West.
I have a 457b with my residency employer currently, an anticipate needing to do something with that when I graduate (i.e. rollover somewhere).
Thank you!
Vanguard if my usual default.
I assume you’re already maxing out that 457, any 403b/401k available to you and a personal and spousal IRA? If not, there’s no real point to opening another account (a solo 401(k)) when you’re not even maxing out the ones you have.
Thank you so much for writing such an informative blog. I was all set to open my solo 401K at Fidelity but a few posts got me wondering if I can do this. I have a solo practice with 3 employees, under my S corp. I also do some work for an IPA on the side (outside of my main practice) – I receive 1099s for this, under my personal SSN and not my business EIN. Am I still eligible to open a solo 401K for just my 1099 income? I wasn’t looking to open a 401K for the medical practice at this time.
No. Your businesses are a controlled group and one has employees, so no solo 401k for you.
I’m currently working for an entity as IC with 1099. I don’t have any W2 income. I created an LLC but hasn’t done anything to it. I will need to create EIN. I work shifts, so income can fluctuate. Let’s say it will be 300K-400K. In the near future, I want to hire my kid(s) to do some menial work for me so that I can pay him and put that money into Roth IRA for him (he is 10 years old). I anticipate his income would be less than however much that does not require him to file income tax (12K). I have 3 kids, and plan to do the same for all of them. Currently I believe I have a 401k from my first job that’s been sitting there for 10 years with Fidelity and I haven’t convert or roll it into anything yet. I also have 457b account sitting somewhere for when I was a resident. I also have an HSA sitting somewhere as well, last time I contributed in that HSA was over a year ago (moved job) .
1) Should I file tax under LLC sole proprietor or under S-corp? Please take into consideration of SS tax, medicare tax, FICA tax, etc… I tried reading all the posts but all those calculations and percentages made my head spin. I really have no clue. What would be “reasonable salary” W2 that I should give myself?
2) If going as S-corp, and potentially will have up to 3 little employees, does it mean I cannot open solo401K for myself? What would be my alternative then?
3) I read some comment saying something about having to have “equal contributions to all employees”. Does it mean I need to “contribute” to my kids the same percentage that I would contribute to myself?
4) Should I or can I roll my HSA account into something else? What about my old 401k? What can I do to it?
Much appreciate ANY help I can get. Thank you!
1. Don’t know. How much would your distribution be? My general rule is you need a $100K+ distribution to make it worth it for a doc to deal with the hassle of an S Corp. Plus, who knows what will change this month in Congress. There was some talk of getting rid of the real benefit of S Corps anyway. Might even be in the bill that has passed the House. I have no idea what a reasonable salary for you would be. You didn’t even tell me your specialty, but why not look up your specialty on a salary survey to see what reasonable salaries are?
2. If they qualify for the 401(k), then no. But I bet you can keep them from qualifying by not giving them very many hours.Don’t forget all the employee paperwork like I-9s, W-2s, W-3s, W-4s. If they’re employees, you have to treat them that way.
3. If they qualify for the 401(k), then the 401(k) must pass several tests to ensure the employees aren’t getting screwed over by the owners.
4. Just make sure it is in a good HSA and properly invested for what you are using it for. You can’t roll it into a 401(k).
https://www.whitecoatinvestor.com/the-best-ways-to-use-an-hsa/
https://www.whitecoatinvestor.com/the-best-health-savings-account/
https://www.whitecoatinvestor.com/retirementaccounts/
Thank you for taking the time to reply so quickly. I appreciate your help.
My specialty is EM.
I don’t know what the s corp distribution would be. How does it get determined? If I make 300k, pay myself a salary 150k, would the distribution be 150 minus whatever expenses?
You are right. I just realized that my kids don’t have to be w2 employee and I can still hire and pay them. It was late at night when I delved into the rabbit hole of finance stuff. I can open i401k for myself.
I guess the sticking question I have is s-corp or not s corp.
Yes, that’s the way it works. And you probably want to wait to see what Congress does this month before deciding.
Deleted. Duplicate post.
Hello- Great posts. I’m learning a lot! A few clarifying questions with my current situation…
I have a few regular jobs and a few that are 1099. I would like to max out the retirement options..
For my main job I am contributing $19,500 to my 401k, but my employer doesn’t match much- maybe it will be $4,000.
I also put $6,000 in the backdoor roth.
For my 1099 jobs, I don’t think I will make that much, maybe $50,000.
I plan to open a solo 401k. My understanding that I can contribute the rest of the employee contribution ($19,500 minus what my employer already put in my other acount, $4,000)? And then 20% of my total income from the 1099 jobs?
Also, is there a need to have a rollover option or is it just nice to consolidate funds?
Thanks so much!!
If you use your $19,500 in your regular 401(k), then you’d be able to put about $10K into the solo 401(k). That’s what most would do to make sure they get the whole match.
Rollover option is really nice if you’re trying to get rid of an IRA to do a Backdoor Roth IRA.
Question about employer contribution:
I converted an old 403b to Roth about $110k. Is that considered an earned income as I will be getting a 1099R for it from my broker company? Can I contribute 20% of it to my solo 401k?
I made about $60K as 1099 from locums otherwise. And I maxed my employer contribution between the old 403b and current solo 401K.
Thank you in advance
Thanks in advance
No, that isn’t earned income. Sorry. Your $60K from locums is though.
Thank you WCI!
The TD Ameritrade individual 401k does allow IRA rollovers and roth 401k contributions. It does not allow loans.
Thanks for the update!
USED to allow loans. I moved my solo 401K to eTrade since TD ameritrade stopped allowing loans and my choices were, take it as a distribution, repay it all in 20 days or move it elsewhere.