Hi Tad,
I ordered the book you reccommended. I noticed it was published in
2002 - does it talk about solo 401k's?

http://www.nolo.com/lawstore/product...28A58696577D2F

Thanks. I have talked to many CPA's and pension attorneys and they all
have a different opinion on what the contribution limits are, nobody I
have talked to so far can even come up with a formula!

One pension attorney we talked to said that my wife can open up a solo
401k even though she earned 10k in w2 income last year and she can
contribute 20k to her solo 401k since she also helps with my sole
propietorship.

Confusion is mounting! I am greatly surprised there are no articles
on the internet on people in my situation. Thanks for all your help
guys! I am getting there! Anyone have any more ideas?

Tom

On Fri, 3 Dec 2004 13:10:30 CST, Tad Borek <borekfm[at]pacbell.netwrote:

- quote -

Beating the wrong dead horse.
That was not my post.
I'm self employed.

Best Regards,
Bob Johnson
http://www.goldsheetlinks.com
http://www.coinsheetlinks.com

Bob Johnson wrote:
- quote -

Bob,
I promise not to beat this dead horse after this post but in your first
post you said,

"I am working for a large company and I participate in their 401k plan.
(85k salary)"

That means you have already made salary deferrals in 2004 and as a
result, you can't contribute the full $13k to your self-emp 401k for
2004. The figure will be reduced by the amount of your deferral to your
main-job's plan limit=($13k - main job's 2004 salary deferral). So if
you deferred the full $13k to that plan then you can't do any additional
salary-deferral contributions and your self-emp 401k will end up with
the same contribution limit as a SEP (that 20%/25% calculation).

I noticed there's only one tiny footnote on one of the Fido forms that
hints that this might be an issue...it says basically "if you
participate in another 401k, this worksheet won't work right."

But kudos to Fidelity for making the setup so easy, that's come a long
way in the past couple years. I think it looks easier than on their
Insitutional side (I use Fidelity as custodian in my advisory practice).

-Tad

- quote -

I've been going through the research procees (Nolo book, IRS site,
internet articles) and am leaning toward the solo/self 401k.
Fidelity has lots of information and their setup appears pretty easy.
http://personal.fidelity.com/product...cc/keogh.shtml
http://personal.fidelity.com/account...brok.html.bvsr

If self employment income is under $13000, one can just do the salary
reduction contribution, which keeps the math a little simplier.
It's the nonelective contribution that get trickier.

For 2005 salary reduction limit goes to $14,000, $15,000 therafter.
Catchup (over age 50) is $4000 in 2005, $5000 thereafter.
Since I turn 50 in 2006, the $20,000 limit looks most appealing.

Everyone's situation is different, but the 401k looks best for me.

Best Regards,
Bob Johnson
http://www.goldsheetlinks.com
http://www.coinsheetlinks.com

Winston Rodney wrote:
- quote -

Yes, for that part of the contribution. But describing "net self
employment income" and the 25%/20% over MIFP is tricky! Also, the
interaction w/his plan at work, effect on the 13k part. That book runs
through a bunch of examples. I think there's some more info in IRS
Publication 560 (www.irs.gov).

I don't think the setup of a solo-k plan is easy. He needs to make sure
the plan he creates allows for the kinds of contributions that will
benefit his situation...that 20% calculation is a small part of it...

-Tad

Wouldn't he be able to figure by taking 20% of net self-employment
profits? (For both SEP and SingleK).

Main difference will be that you can do an additional 13K to the
singleK (or 16K if you're over 50) for salary deferral -- up to the
total limit.

Tad's right that ultimately you'll get to the 41,000 limit and singleK
may not be the answer. It's a matter of preference if you defer to
the company 401k or your own plan. My bias is to control that money
yourself (maybe find out what the fees/expenses are in the company
plan).

But if you make a LOT of money in your self-employment endeavors, you
should defer salary to your employer's company plan and contribute 41K
to the singleK.

Thomas Miller wrote:
- quote -

Tom - those aren't easy questions...not that the formula is complicated,
rather you need to know the types of contributions, the interaction with
your other 401k plan, and which number to multiply by 0.2. Get that
book! (or one like it).

And you should also see what you can get from the people at the
investment firms you've talked to. They should have materials that lay
out the different alternatives.

-Tad

Thanks Tad!


I am debating between opening a SOLO 401k or a SEP-IRA.

For my situation what is the formula to calculate the max contribution
to a SOLO 401k?


For my situation what is the formula to calculate the max contribution
to a SEP IRA?

Is there an online calculator for this? I do programming and will
build one for others to use if need be.

Thomas Miller wrote:
- quote -

Hi Tom-
The thing that occured to me is that you might hit a limit that makes a
SEP and 401k a wash for you, in terms of contributions. And if that's
the case you'd probably go with the SEP because it's easier/cheaper.

Multiple-plan rules are tricky but in a nutshell, one exception to the
"separate employer" rule is related to the salary reduction portion of
401k plan contributions. Your max is probably $13,000 for 2004 at your
regular job where you have the 401k now - you can defer up to $13k of
your salary into the plan. The employer may or may not match some of
that but it's the $13k limit that's important.

That $13k limit applies across all of your 401k plans, in aggregate.
Even if you had 3 active 401k plans, your annual limit would still be
$13k total in 2004, for that type of contribution.

So if you're contributing to your current 401k at the max then it would
change the nature of contributions to your solo-k. It doesn't rule them
out entirely, not at all - you can still make a "nonelective
contribution" to the plan even though you can't make a "salary
reduction" contribution (and by extension, no "employer match").

But if that's all you're contributing, then you might just use a SEP,
because the contribution limit is the same (essentially 20% of your net
self-employment income). Ask the plan advisor at those investment firms,
but I don't know how you'd get more into a 401k than a SEP, if you can't
make salary-reduction contributions.

If you haven't maxed your 401k at work then the solo-k might allow
higher contributions (or you might figure out an optimal mix of
contributions to the two plans). Or it may work out that the 401k is
worth the additional trouble for other reasons. But if not, a SEP might
do the trick. The cost of a SEP is basically zero and you don't have
that tax-return filing requirement that 401ks hit when assets pass
$100k. Also you'll have till your tax filing deadline (including
extensions) to set up & fund the SEP.

-Tad

I have been seriously looking at the solo 401k option as Winston
suggested. The Solo 401k plans have higher contribution limits than
the SEP plans.

Any specific reason why a Solo 401k plan will not work out? I have
called 3 investment firms and they say it is perfectly acceptable to
have a solo 401k, roth ira, and regular 401k all at the same time.

I am getting that book now but need to decide soon so I can save this
tax year!

Thanks,

tom

Thomas Miller wrote:
- quote -

Thomas-
Yes, it is possible to contribute to a 401k, SEP, and Roth all in the
same year. Generally the "separate employer" rule allows you to set up,
say, a SEP for your self-employment income while having a 401k with your
primary employer. And Roths have separate contribution rules that aren't
affected by your participation in a 401k or SEP.

But there are some cross-plan limits to be aware of and it takes some
figuring to determine which combination of plans would be best for you.
My guess is it wouldn't make sense to set up a solo-k but who knows,
maybe it'd work.

A very good book on this topic is "Creating Your Own Retirement Plan"
from Nolo Press (www.nolo.com). It goes through all the alternatives and
discusses the issues when you have multiple plans.

-Tad

msg_board_member[at]hotmail.com (Winston Rodney) wrote in message news:<e7b06068.0411281014.28489aa1[at]posting.google.com> ...
- quote -

Thanks for the information.

You may want to do a Solo 401k (for the LLC or 1099 income) instead of
a SEP and you'd be able to put away more money -- assuming cash flow
is not a problem.

SEP is pretty easy to set up, just call whoever you want to hold it
and ask for their application.

I am working for a large company and I participate in their 401k plan.
(85k salary)

I also contribute to a Roth IRA. (max it out)

I have been receiving income as a 1099 independent contractor. (about
60k a year)

I have also been receiving income from a LLC that I formed that I own
100%. (about 30k per year)

Can I open up a SEP-IRA even though I am investing in the 401k and
Roth IRA already?

Can you tell me all the paperwork that I will need to complete to do
this (SEP-IRA)?

Thanks in advance.