New attending looking for advice on setting up a Solo 401k

[EMdocKH]

Hi everyone. I'm a 2nd year emergency medicine physician and am looking into setting up a Solo 401k for the first time. For context I'm an independent contractor with S Corp status working in California. I'm still pretty new to all of this. I previously have been using a SEP IRA through Wealthfront. I really liked the simplicity of the robo-advising and low fees, but as my paycheck has grown as a new attending it now makes more sense for me to open a Solo 401k in order to max out my contribution at $66,000. If I wanted to contribute this much via my SEP then I would have to raise my "salary", which would force me to pay higher payroll taxes. Therefore the Solo 401k route makes more sense in my mind. Wealthfront does not offer a Solo 401k option, so I am looking elsewhere.

After doing a lot of reading I think the Solo 401k through Charles Schwab is the best fit for me. The thing I need the most help with is asset allocation. I'm 31 years old and anticipate I will work about another 25 years, so I have a relatively high risk tolerance. For more context, my wife is a family medicine physician working at a large academic center and we have no kids (for now). I'm envisioning a portfolio with 80% "risky" assets and 20% "safe" assets. Here is the portfolio that I am envisioning, but I would love to hear your thoughts, positive and negative:

Total US stock market (SCHB): 40%
Total international stock market (SCHF): 20%
Small value (SCHA): 10%
REITs (SCHH): 10%
Nominal bonds (SCHZ): 10%
TIPS (SCHP): 10%

Does this asset allocation seem reasonable? Is the US vs foreign balance appropriate? Are TIPS still a good investment in 2023? From what I've read it seems like there are many correct answers with asset allocation, but I just want to make sure there aren't any glaring errors in this plan.

Thanks in advance!

[bovie]

The thing I need the most help with is asset allocation. I'm 31 years old and anticipate I will work about another 25 years, so I have a relatively high risk tolerance. For more context, my wife is a family medicine physician working at a large academic center and we have no kids (for now). I'm envisioning a portfolio with 80% "risky" assets and 20% "safe" assets.

Considering what you've written above, my first question is--as a 31yo with decades until retirement and a "relatively high risk tolerance"--why you would have any bonds in your portfolio at all?

I think your proposed breakdown of US versus international equities is appropriate, and I personally like your small value tilt and REIT allocation.

But I'd take the 20% allocated to bonds and put 10% more into US, 5% more into international, and 5% more into small value. No bonds.

[VagabondMD]

Yes, your asset allocation is very reasonable.

[Turf Doc]

I feel like small value is more likely to hinder the average person than help

[jfoxcpacfp]

The question that comes to mind is are you paying yourself a reasonable salary for your location and profession? It should not be dependent upon how much you have to pay yourself to max out a retirement plan. 2nd question is does an S-corp make sense for you in CA? Maybe it does, just don’t have enough info. And, of course, the bond question addressed above.

[EMdocKH]

Thanks for your suggestions everyone. jfoxcpacfp, my CPA and I have determined that my "reasonable salary" is $200k. With the SEP that means I can only put $50,000 (25%) a year into retirement. If I wanted to max out the SEP at $66,000 then it would require raising my salary to $264,000 and having to pay payroll taxes on that extra $64k.

In regards to the S Corp status, I didn't necessarily want to have to do that, but for whatever reason my employer requires us to all be incorporated. I'm still not quite sure why we can't just be sole proprietors or form an LLC, but so it goes. All the hard work is behind me in setting that up.

I'll definitely consider decreasing my bond allocation.


One final question that I've been toying with: Jim Dahle certainly seems to love Vanguard. I get that they have paved the way for mutual funds the last several decades, but in looking at expense ratios it seems like they are just about the same as other companies. It sounds like their customer service and online platform is behind the times. And from what I've been reading it sounds like Vanguard charges $20 per fund per year. I realize this is a drop in the bucket in the long run, but fees are fees. Is there something else that I'm missing about Vanguard which makes some people view them as the holy grail?

[bovie]

One final question that I've been toying with: Jim Dahle certainly seems to love Vanguard. I get that they have paved the way for mutual funds the last several decades, but in looking at expense ratios it seems like they are just about the same as other companies. It sounds like their customer service and online platform is behind the times. And from what I've been reading it sounds like Vanguard charges $20 per fund per year. I realize this is a drop in the bucket in the long run, but fees are fees. Is there something else that I'm missing about Vanguard which makes some people view them as the holy grail?

Regarding the $20 fees, you can eliminate this by simply electing for e-delivery of statements, confirmations, etc., or meeting an account balance minimum.

As to the larger question of Vanguard-or-bust, you are right in that their customer service and platform are behind the times. To be honest, that's putting it mildly. Their customer service and platform are garbage.

People (especially around here) view Vanguard as the "holy grail" mainly out of a sense of loyalty and acknowledgement for what they have done in the past in terms of bringing index funds and low fees to the average investor. Which was, of course, a huge deal. And they love Jack Bogle.

That said, those days are gone. The playing field is now level in terms of fees. Some even offer funds that are literally free (not just basically free). Everyone has index funds, and you can get ETFs anywhere for free.

Personally, we currently have accounts at several difference brokerages (e.g., Fidelity, Schwab, E*Trade, TD Ameritrade, and Vanguard). Vanguard is by far the worst, overall.

[GlassPusher]

Agree with not feeling tied to one account. I have my PP 401k/profit sharing at a self-directed Schwab account, all my 529s, IRAs and after-tax accounts at Merrill Lynch EDGE, and HSA at Fidelity. [IMO Merrill's EDGE product has been pretty smooth the last several years, fwiw. Used to have Vanguard and switched everything to Merrill]

[jfoxcpacfp]

Thanks for your suggestions everyone. jfoxcpacfp, my CPA and I have determined that my "reasonable salary" is $200k. With the SEP that means I can only put $50,000 (25%) a year into retirement. If I wanted to max out the SEP at $66,000 then it would require raising my salary to $264,000 and having to pay payroll taxes on that extra $64k.

In regards to the S Corp status, I didn't necessarily want to have to do that, but for whatever reason my employer requires us to all be incorporated. I'm still not quite sure why we can't just be sole proprietors or form an LLC, but so it goes. All the hard work is behind me in setting that up.

I'll definitely consider decreasing my bond allocation.


One final question that I've been toying with: Jim Dahle certainly seems to love Vanguard. I get that they have paved the way for mutual funds the last several decades, but in looking at expense ratios it seems like they are just about the same as other companies. It sounds like their customer service and online platform is behind the times. And from what I've been reading it sounds like Vanguard charges $20 per fund per year. I realize this is a drop in the bucket in the long run, but fees are fees. Is there something else that I'm missing about Vanguard which makes some people view them as the holy grail?

The other custodians don’t have Bogleheads. I have never been a cheerleader for Vanguard.