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Anyone used Fidelity Solo 401K?

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  • Anyone used Fidelity Solo 401K?

    I have just recently opened up a solo 401K at Fidelity for my (part time) wife's anesthesia gig. She gets paid in cash from multiple providers and has no other retirement plans. After all expenses she has around 15K (variable between 10-20K) in profit. I have a couple of questions regarding how best to transfer money into her retirement account and what to expect come tax time. Sorry I am financially a newbie, here are some basic questions:

     

    1. Will fidelity send the necessary paperwork to me at tax time or will I need to fill out additional forms/paperwork?

    2. Can I transfer money from the company checking account straight into fidelity and begin investing?

    3. With the solo 401-k, if she has 15,000.00 in profit, can she transfer that full amount at the end of the year to invest.

    4. Does anyone have any tips or had any issues that may be helpful

     

    Thank you in advance

    Gig-em-ags

  • #2
    For a "newbie," you and your wife are doing some pretty advanced things! Good for you.

    I have used Fidelity for my Solo 401(k) for several years.

    1. Yes, they will.

    2. Yes.

    3. With 15k in profits and no other retirement accounts available to her, your wife can contribute all 15k as a tax-deferred elective employee deferral. She doesn't have to wait until the end of the year to do it. Technically, though, your wife does have another retirement account available. You can use your earnings to do a Backdoor Roth IRA for her each year. WCI has an article about this. Should she have an old IRA floating out there from a previous employer, she would need to move it into her Solo 401(k) prior to doing the Backdoor Roth IRA. Good thing her Solo is at Fidelity, as they allow rollovers, while Vanguard's Solo doesn't. See, are you really a "newbie"?

    Get a second opinion about this, but your wife may want to deduct fewer expenses. Why deduct $3000 for scrubs, mileage, CME, etc., when instead she could report an income of $18,000 and contribute all of that as a pre-tax Solo 401(k) salary deferral?

    I am soon to move to Employee Fiduciary for their customizable plan document that allows the "Mega-Backdoor Roth." Your wife might consider that should her profit increase significantly in the future. That allows $18,000/year salary deferral as the employee, an employer "match" of roughly 20% of profit, and then Backdoor Roth contributions until the $53,000 annual defined contribution limit is reached.

    War Eagle!

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    • #3
      IMDoc seems to have covered it

      Just one thing to keep in mind in future, once the account gets >250k then you have to file a yearly form with the IRS

      https://www.nolo.com/legal-encyclopedia/the-rules-filing-irs-form-5500-your-solo-401k-plan.html

       

       

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      • #4
        IMDoc-

        Thank you so much for your reply. It was extremely helpful. I guess I may not be a total newbie but I am definitely a lurker (and slow learner) that tries to catch a nugget every now and then.  I really appreciate and am very grateful to you, this blog/forum, WCI, and all those that share their knowledge.

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        • #5
          Did you include taxes in your expense?  You still potentially have to pay SE + medicare taxes off the top of your profit.  She may also owe quarterly estimated taxes, especially if she has no W-2 income to over withhold from.  You just get to defer income taxes by stowing the rest in your solo-401k.  Check out Vanguard's calculator for solo-401k contribution (at the bottom of the page): https://personal.vanguard.com/us/SbsCalculatorController.  It takes into account the SE + medicare taxes, I believe. Also check out these excellent posts from reddit:

          https://www.reddit.com/r/personalfinance/comments/54auhq/sub_contracting_taxes_and_writing_off_expenses/d80budl

          https://www.reddit.com/r/personalfinance/comments/3trne3/selfemployed_what_software_or_spreadsheet_for/cx8zzqi

          https://www.reddit.com/r/personalfinance/comments/54auhq/sub_contracting_taxes_and_writing_off_expenses/d80d7tv

          https://www.mysolo401k.net/Calc/Individual401kContribution.html (the calculator link is dead in one of the posts)

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