Wednesday, July 10, 2024

How To Do Your Own 401k

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The employer alone contributes to a SEP IRAnot employees. So, unlike the solo 401, youd only contribute wearing your employer hat. You can contribute up to 25% of your net earnings , up to a maximum of $58,000 in 2021 .

The plan also offers flexibility to vary contributions, make them in a lump sum at the end of the year, or skip them altogether. There is no annual funding requirement.

Its simplicity and flexibility make the plan most desirable for one-person businesses, but theres a catch if you have people working for you. Although you do not have to contribute to the plan each year, when you do contribute, you need to do so for all of your eligible employeesup to 25% of their compensation, limited to $290,000 annually.

While SEP IRAs are simple, they are not necessarily the most effective means of saving for retirement. You can contribute more to a SEP IRA than a solo 401, excluding the profit-sharing, but you must make enough money since its based on the percentage of profits, says Joseph Anderson, CFP, president of Pure Financial Advisors.

How To Consolidate Credit Card Debt On Your Own

About Brooke

Brooke is a freelancer who focuses on the financial wellness and technology sectors. She has a passion for all things wellness and spends her days cooking up healthy recipes, running, and snuggling up with a good book and her fur babies.

At a Glance

Many people mistakenly believe they need professional help to consolidate credit cards. But you can pursue debt consolidation on your own if youre willing to put in the time to research options and apply.

In this article, youll learn:

If youre managing multiple debts and are feeling like youre treading water, youre not alone. A recent study showed that, on average, Americans have about $23,325 in debt excluding mortgages, with 19% of monthly income going toward credit card bills. Yikes!

One way to ease the burden of is through debt consolidation. And the good news is, you dont always need to work with a professional to do it. Were here to guide you and help you understand how to consolidate credit card debt on your own using the following options.

What Does Safe Harbor 401 Mean

A safe harbor 401 is a type of 401 that avoids the complicated annual nondiscrimination test requirements. Without a safe harbor 401, the employer needs to do a test each year on whether highly-compensated employees or owners are benefiting unequally from the 401 plan. If so, the company needs to give back those excess contributions to the employee. A safe harbor 401 is exempt from those tests.

To have a safe harbor 401, the plan must:

  • Allow all employees to contribute up to the maximum allowed by the IRS,
  • Provide mandatory contributions by the employer, either by giving an automatic 3% contribution for all workers, or matching 100% of up to 3% of an employees contribution and then 50% of a workers additional contributions, up to 5%. These employer contributions must vest immediately.
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    What Are The Maintenance Costs For Setting Up A 401

    Once you establish a 401, your business will have ongoing costs in the form of administrative fees and any matching contributions. Fees generally fall into three categories: day-to-day operations, investment fees, and individual service fees.

    There are also potentially fees or penalties associated with being non-compliant with regular 401 benchmarking, which you’ll want to avoid at all costs. A few examples of 401 penalties include:

    • Non-compliance with ERISA for failing to meet certain filing and notification requirements
    • Failing to file Form 5500 with the IRS each year
    • Not providing 402 notices to plan participants who are seeking distributions from their retirement plan accounts

    One way to avoid fines and penalties is working alongside a knowledgeable retirement services provider that can help ensure compliance when it comes to retirement plan forms, deadlines, and notifications.

    Is A Rollover Ira Better Than My 401

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    Whether you go for an IRA or 401 will depend on what you wish to get out of it. You need to think about whether its worth staying or moving money over.

    If you are happy with your 401, then there is no reason for you to move it over. However, make sure you look at the fees involved and decide if you want to have more investing options.

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    Factors That Affect The Amount You Need To Retire

    The sooner you start saving to retire, the more comfortable life youll have. Therefore, knowing the amount you should save for retirement in advance gives you the edge. Sure, you might be saying, Thats easier said than done. I say, to achieve what you need to retire depends on various factors. They include:

    Your Spending Habits

    I couldnt blame anyone for thinking that retiring is about how much money they get in retirement. But, the best financial plans emphasize controlling expenses. Income is secondary.

    Expenses can get split into two categories: Needs and Wants. Needs are things that you need to live. For example, mortgage payments, insurance payments, and food are all examples of needs expenses. On the other hand, shopping, subscriptions , and travel are all examples of wants.

    How much you need to retire depends on how much you intend to spend in retirement. If you can retire without any expenses, then you can retire today. Of course, thats probably not the case. Perhaps you want to travel or save for your grandchildrens education. Regardless, these expenses need to get planned and budgeted in advance.

    Your Savings Habits

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    What Type Of Ira Should I Open

    During the process of opening your new account, you may get asked which type of IRA youd like to open. You might see the following options: Rollover IRA, Traditional IRA, or Roth IRA. Heres how to pick the right one:

    • If you had a Traditional 401 pick a Rollover IRA or, if thats not available, Traditional IRA or, if thats not available, just IRA. The only exception would be if youre considering a Roth conversion, but this is an advanced tax planning strategy that most people dont need to worry about.
    • If you had a Roth 401 pick a Roth IRA. Youll need to match the Roth 401 to a Roth IRA for tax reasons.
    • If your 401 has mixed assets youll need to open two IRAs, one Roth and one Traditional to for their respective assets.

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    Solo And 401 Rules When You Have Employees And Multiple Businesses

    A 401 is a great benefit normally associated with large companies where the employee makes contributions and the employer offers a match. The contribution limits are high and can allow for significant tax deferral on the income you earn each year. What a lot of people may not know is that you dont have to be a large company to have a 401 plan. In fact, you can be the only employee in your own business and have a retirement plan.

    If it is just you in your business, your company can start a retirement plan known as a solo 401. The solo 401 allows you to adopt a retirement plan and make personal as well as company contributions to the plan for yourself and any of the owners of the company.

    • You must have a business generating ordinary income to make to have a 401 plan.
    • You can personally contribute up to $19,000 to the plan.
    • Your company can contribute up to 25% of the income it pays you.
    • For 2019 the total max 401 contribution is $56,000.

    The 401 plan can be self-directed, which means you can invest the funds in almost any opportunity you find . The 401 also has a loan provision allowing you to borrow funds from the plan and use them for anything you want.

    What If I have Multiple Businesses With Only Employees in Some?

    Controlled Group Rules


    What Are The Benefits Of Offering A 401 To Employees

    Spouse 401k or your own SEP IRA or Individual 401k

    When it comes to 401 plans, there are often common misconceptions around the time, resources, and costs it takes to establish and set up a plan. Business owners may believe that a 401 plan isn’t right for them, are unclear of the benefits, or believe the administrative responsibilities are too cumbersome. In truth, there are some significant advantages in offering a 401 plan to employees:

    • A 401 can help make your business more competitive in attracting and retaining top talent.
    • Employers can take advantage of an annual tax credit of up to $5,000 for the first three years of the plan.
    • Plan expenses are tax-deductible, along with employer contributions such as an employee match or profit-sharing.
    • Advances in payroll integration and recordkeeping make the implementation and maintenance of offering a retirement plan more affordable than ever.

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    Why Rollover A 401k

    For me the decision was simple. I prefer the low cost Vanguard funds over Fidelity funds. Fidelity does offer some really low cost index funds, but Vanguard offers a wider variety of funds with rock-bottom expense ratios.

    In addition, by moving funds over to Vanguard, I can qualify for even lower fees and more exclusive customer service. In addition to a standard account, Vanguard offers what it calls Voyager, Voyager Select and Flagship accounts. To qualify, however, you must have minimum account balances. By moving more money over to Vanguard, its easier to qualify for a higher level of service. Here are the requirements of each account type and what they offer:

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    Contribute To An Ira And Solo 401k Plan

    QUESTION 1: Can I make both solo 401k and Traditional IRA contributions for the same year?

    ANSWER: Yes you can contribute to both your solo 401k plan and your IRA in the same year. However, the IRA contributions may not be fully tax deductible since you are also contributing to a solo 401k plan. It comes down to your modified AGI which means you may be able to deduct some of your IRA contribution. for the AGI chart.

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    Plan Now For A Secure Retirement

    Self-employment puts you in control of your lifebut it could require some extra legwork when securing your financial future. The earlier you start saving for retirement, the longer your money will have to build compound interest. Making a financial plan, by yourself or with help from a financial advisor, can help you prepare for your golden years and create a budget to save for the future.

    Reducing debt and maintaining a good credit score can also help ensure smooth sailing in retirement. You can get your credit report for free from all three consumer credit bureaus through You can also check your and FICO® Score based on Experian data for free through Experian. Keeping close tabs on your credit helps make sure you’re prepared for any borrowing you want to do in the future. Many retirees want to buy or rent a new home, use credit cards to travel or pay off medical bills. Good credit can make it easier to achieve these and other financial goals.

    Rolling Over To A New 401

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    The first step in transferring an old 401 to a new employer’s qualified retirement plan is to speak with the new plan sponsor, custodian, or human resources manager who assists employees with enrolling in the 401 plan. Because not every employer-sponsored plan accepts transfers from an outside 401, it is imperative for a new employee to ask if the option is available from the new employer. If the plan does not accept 401 transfers, the employee needs to select one of the three other options for the 401 account balance.

    If the new employer plan accepts 401 transfers from other companies, there is often a substantial amount of paperwork that must be completed by the employee. The paperwork is provided by the new plan sponsor or human resources contact and requires the name, date of birth, address, Social Security number, and other employee identifying information.

    In addition, the 401 transfer form must provide details of the old employer plan, including total amount to be transferred, investment selections held in the account, date contributions started and stopped, and contribution type, such as pre-tax or Roth. A new plan sponsor may also require an employee to establish new investment instructions for the account being transferred on the form. Once the transfer form is complete, it can be returned to the plan sponsor for processing.

    A transfer from one 401 to another is a tax-free transaction, and no early withdrawal penalties are assessed.

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    Roth And Traditional Iras

    Often the first thing advisors recommend to those who don’t have an employer-sponsored 401 is opening a Roth individual retirement account, where you’d set up your own contributions with after-tax dollars.

    “I love the Roth IRA for young investors,” said Tess Zigo, a certified financial planner at Emerge Wealth Strategies in Lisle, Illinois, adding that this is because young people are usually in a lower tax bracket early in their careers than they will be later.

    Saving money in a Roth IRA means the funds will grow tax-free, meaning you don’t have to pay anything to withdraw the money in retirement. People using a Roth IRA can also put away a nice chunk of money each year. In 2021, the total you can save in a Roth IRA is $6,000, or $7,000 if you’re 50 or older.

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    Of course, there are some limits. In 2021, your modified adjusted gross income must be less than $140,000 for single filers and $208,000 for those married filing jointly in order to qualify.

    If you have taxable compensation, you could also save for retirement in a traditional IRA, which allows you to defer taxes, similar to a 401. This makes sense if you are in a higher tax bracket now than you will be later. In 2021, the contribution limit for a traditional IRA is $6,000 or $7,000 if you’re 50 or older.

    Selecting A Brokerage Firm For Your Solo 401k

    When selecting a brokerage firm for your solo 401k, you want to select the firm that offers the most options.

    If you’re okay with a prototype plan, you can use our Solo 401k Brokerage Comparison to see which major firms offer the options you’re looking for.

    If you’re using a custom solo 401k plan, you need to take your solo 401k documents to the brokerage of your choice and they will open a custodial account on your 401k’s behalf. Some firms offer this service, and others don’t. For example, Fidelity and Charles Schwab are two brokerage firms that allow for customers to use third-party 401k plans with their brokerage services.

    However, when using a third party plan, it adds to the complexity of using a solo 401k. For instance, as a custodial account, the firm will not keep track of your trades and investments – that’s your responsibility. If you need to fill out tax forms, such as a 1099-R, these firms will not help you. You either have to do it yourself, or pay someone to do it for you.

    We decided to go with ETrade for our Solo 401k because they had the most robust free plan.

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    Ira Or Solo 401k Question:

    They both allow for investing in alternative investments including real estate, but the solo 401k is generally more advantageous. For example, the contributions limits are higher for a solo 4o1k plan, you can borrow from a solo 4o1k plan, and the ongoing fees are also generally much less. See the following link for more on this.

    How Well Do You Know Your 401k

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    Have you ever done something in the past and years down the road realized how impactful that decision was? Oh, and then regretted it and wished you had done something differently? I am reasonably sure weve all done this at some point. However, this is not an experience I want to have when it comes to my retirement savings.

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    Benefits Of A Solo 401

    Solo 401s provide some advantages over other types of retirement accounts available to you.

    One big advantage is the availability of the Roth option as well as the traditional version. Only the traditional option can be used by those who invest using the SEP IRA, a Keogh plan, or a SIMPLE IRA. The plain-vanilla IRA that is available to all who have earned income is available in Roth or traditional versions but the annual contribution limits are far lower.

    One of the main advantages of the solo 401 is that it can accept contributions from both an employee and an employer. That is, if you have a solo 401, you wear both hats and can make contributions in both roles.

    Move Your Money To Your New Employer’s Plan

    If you have a new employer offering a retirement plan, you may be able to transfer your savings into it.

    • Your savings stay invested with the same tax advantages
    • You might be able to roll in savings from other retirement plans
    • You can make ongoing contributions.
    • The investment options depend on what the plan offers.
    • You may be able to take out a plan loan, or withdraw money before retirement under certain circumstances

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