What to do while waiting period in new employer 401K

[ivanvet]

First post!

Let me first thank you for such a fantastic website and the new forum. Your posts have been a great help for our short financial career, which is about to change.

I’m a veterinarian and about to finish my cardiology residency (fellowship of human medicine counterpart). I will start a new job in Massachusetts in September, 2016 but I cannot contribute to my new employer’s 401K for 1 year. Also, instead of matching any contribution, my employer will pay the equivalent of the contribution as a bonus at the beginning of the year. I know, this retirement plan is not ideal but it is what it is, and the job is worth it.

I am also planning on having a side business (I think establishing a LLC) and I will definitely open a solo 401K for this (from July 2016). My questions are the following:

- During the waiting period of the employer 401K, can I still contribute the 18K as employee in my solo 401K? If this were possible, I would assume that following this approach would make more sense than keeping that money in a taxable account. What are your thoughts?

- Once the waiting period is over, and since my employer does not match directly, Should I start contributing to the employer 401K or would it make more sense to put the money in the solo 401K which hopefully has better options?

- With the bonus that the employer would pay (instead of matching), should I put it in a taxable account? Needless to say I will max the Backdoor Roth IRA (thank you TheWhiteCoatInvestor!) and I will work on our emergency fund.

Once I move I will most definitely contact a tax accountant or attorney to get some help, but seeing how much you all know I though you would have a good advice for this situation.

Thank you in advance,

Heartvet

[iglord]

The 18K contribution limit is across all your 401k's available to you. As long as you make at least $18K from your side gig you could put all of that money in as an employee contribution.

I would consider a taxable account once I've used up any 401K's or backdoor Roth's. With all the posts this last two weeks on tax loss harvesting I feel left out of the "fun" of racking up some paper losses.

[jfoxcpacfp]

@Ian is correct - you can contribute up to $18k and add an employer contribution to get you to $53k, but not beyond your net profits from the side business. Since your employer does not match, I'd recommend sticking with the Solo-k as long as you have the profits to allow. Otherwise, if your profits are, for example, $12k then you should put another $6k in through employer withholding.

As for what to do with your bonus, that depends upon your financial plan and your current situation. Do you have loans that need to be paid down? Will you need money in the next 5 years for a house downpayment, vehicle replacement, etc? Any funds you will need within the next 5 years should not go into the stock market. If you have excess beyond that (assuming your emergency fund is adequate and you have contributed to a back-door Roth), a taxable account might be fine (again, depending upon your goals). If you are married, you can also contribute to a back-door Roth for your spouse.