retirement for an independent contractor

[spiritrider]

I know this might sound like an invasion of the alphabet killers, but you really need a suite of professionals. A good small business lawyer to get you started.

A good CPA is necessary for tax issues, a good "fee-only" financial planner for retirement planning. Your best option is if you can find a CPA with the additional Personal Financial Specialist (PFS) credentials or even better someone who is both a CPA/CFP. Unfortunately, I find many standard CPAs have marginal knowledge when it comes to retirement plans.

Then like Ken said, if you are going to go to a cash balance plan later, it may make sense to use a TPA for a custom plan now. You can pick and choose your custodian and not worry about the quirks of the mainstream provider one-participant 401k plans. There are other retirement plan specialists that can have an excellent ROI on their professional services, especially when you get to a cash balance plan.

They might seem like unnecessary expenses, but there is a reason that people come see you for medical emergencies. I know that many physicians think, "hey, I got this". Not making any political judgements of the Iraq war, but one of my favorite quotes from that war was from Donald Rumsfeld.

"There are also unknown unknowns. There are things we do not know we don't know." It is the unknown unknowns that will bite you in the @$$ when it comes to business entities, taxes and retirement plans.

[mdfamily]

Hi guys, so after long deliberation and multiple phone conversations I am leaning towards opening a SEP IRA with betterment. This company does robotic investing, whatever that means. What I found appealing was the low fees %0.25 and the fact that they do things automatically (rebalancing, and some tax stuff which I didn't completely understand). Also I found the website super friendly (the best actually) and the best customer service from my day of phone calls (I called them twice, within a minute got someone on the line both times, everyone else was much slower, fidelity wanted to confirm my identity before providing just general information... ).

I can put money for 2017 in a SEP IRA until I file, so doesn't have to happen this month.

 

Does anyone have any thoughts or ideas? Anyone has experience with them?

I already opened my generic account with them, but didn't setup a SEP yet, will probably do it today or tomorrow....

looking forward to hearing everyone's opinions!

 

Thank you for all the posts so far it's been very helpful

[mdfamily]

Also wanted to add that betterment doesn't have a solo 401k option

[litovskyassetmanagement]

mdfamily wrote:

Hi guys, so after long deliberation and multiple phone conversations I am leaning towards opening a SEP IRA with betterment. This company does robotic investing, whatever that means. What I found appealing was the low fees %0.25 and the fact that they do things automatically (rebalancing, and some tax stuff which I didn’t completely understand). Also I found the website super friendly (the best actually) and the best customer service from my day of phone calls (I called them twice, within a minute got someone on the line both times, everyone else was much slower, fidelity wanted to confirm my identity before providing just general information… ).

I can put money for 2017 in a SEP IRA until I file, so doesn’t have to happen this month.

 

Does anyone have any thoughts or ideas? Anyone has experience with them?

I already opened my generic account with them, but didn’t setup a SEP yet, will probably do it today or tomorrow….

looking forward to hearing everyone’s opinions!

 

Thank you for all the posts so far it’s been very helpful

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Avoid asset-based fees whenever possible.  I would recommend a solo 401k at Vanguard, Schwab or Fidelity vs. having to pay AUM fees.  Those might seem small, but compounded over several decades those can get really high.  Besides, you can't do a SEP and also do a DB plan so you have to be careful about the timing of your SEP contributions if you ever decide to do a DB plan later on.  You can also max out a solo 401k with a lower W2 if you do decide to be taxed as an S corp.

Betterment is over-rated. Their after-tax accounts are questionable at best (they probably lose more in active trading spreads and lost returns because of active trading than they get you in tax savings) because we don't have long term history of how their strategy actually works out in practice.  There is zero benefit to automatic tax loss harvesting in tax-advantaged accounts.  Their marketing is good, but none of it has been confirmed to work in practice to the degree that they claim it is supposed to work - anyone can cook up a study, but I doubt the results will be nearly as good as they say (on the contrary I believe that the longer the horizon, the worse the results will be simply because they engage in active trading).  Also, they don't necessarily pick the best investments in each asset class, and that does cost extra basis points.

[mdfamily]

Oh gosh
Just when I thought I have it nailed down...
What is a DB plan? Is the cash balancing plan you mentioned a db plan?
How do I make sure it's "timed" correctly?

Thank you

[litovskyassetmanagement]

mdfamily wrote:

Oh gosh
Just when I thought I have it nailed down…
What is a DB plan? Is the cash balancing plan you mentioned a db plan?
How do I make sure it’s “timed” correctly?

Thank you

Click to expand...

Well, I think it is kind of hard to give advice over the internet.  Everyone is different, with different needs, so we are exchanging blanket statements so far, and you can take whichever ones that work for you and make them work.

As I mentioned before, if you are at least 35 (the older the better), you might benefit from a CB (also known as a DB) plan if you also have a net that's high enough and would remain steady over the next 5-10 years.  Otherwise you can simply do a solo 401k (and with a spouse on the payroll) contribute significant amount into that plan.  Also, SEP won't allow you to do backdoor Roth IRA contribution.

You can open a solo 401k for 2017 by Dec. 31st (so you have to act now), and I would do that first.  If you are a good candidate for a CB plan, you are really too late anyway for 2017, but you can evaluate whether one would be a good match for you for 2018.

[mdfamily]

Thanks a lot Ken.
One last question - if I do a sep for 2017 can I just roll it over to a solo 401k for 2018 withput paying any fee or penalty for it?
As the sep is already setup and 401k would require mailing me paperwork, signing them and mailing them back (they can't do solo 401k electronically for some reason).

[litovskyassetmanagement]

Yes, you can do that.  Just make sure that when you open a solo 401k that it can accept incoming rollovers first.

[mdfamily]

Thanks.
BTW vanguard does charge for a solo 401k "$20 per year for each Vanguard fund held in a Vanguard Individual 401(k) account "


Thank you!

[litovskyassetmanagement]

mdfamily wrote:

Thanks.
BTW vanguard does charge for a solo 401k “$20 per year for each Vanguard fund held in a Vanguard Individual 401(k) account ”

Thank you!

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No, I don't believe so, if you choose paperless statements.  I also don't think Vanguard accepts incoming rollovers, unless this changed recently.

[spiritrider]

Vanguard's Individual 401k may not be the best option for you:

1. As Kon said; Rollover contributions are not allowed.


2. Admiral Share index funds are not allowed, only the higher priced Investor Share index funds can be purchased.


3. Employee eligibility restrictions are not allowed.

Other competitors, allow rollover contributions, have index fund or available ETFs with expense ratios <= Vanguard Admiral Shares, and/or allow employee eligibility restrictions. At your income level you shouldn't be doing Roth 401k deferrals. However, if you want to, Fidelity and Schwab do not support Roth 401k accounts, but ETrade and TD Ameritrade do. Unfortunately, TD Ameritrade recently removed most of Vanguard's ETFs from their commission free ETF list.

[mdfamily]

Thank you
Any idea why there are no 401k that can be opened online?
This is particularly bothersome because I work intensively (in multiple different states) and the post office is closed by the time I am done with work.
I noted that sep can be opened online

Why do you think I shouldnt be doing Roth IRA deferrals? I can do that on top of a 401k no? Last year I got a backdoor Roth IRA (or whatever it's called).

[MPMD]

Fidelity 401k is very user friendly.

-you don't need an EIN, I have asked them several times about this

-very easy to characterize contributions as employer

 

Cons

-not sure they accept incoming

-no Roth option

 

I agree with what others have said that I would balk at paying even low AUM fees on something like this. If you are sophisticated enough to be thinking about this you are sophisticated enough to do some simple investment planning. Search for WCI blog post on "150 portfolios better than yours."

 

To the OP remember that with solo 401k you have to put the money in in the calendar year you don't get a grace period like with Roth IRA so you need to figure this out within 2 weeks if you want to get it done for 2017.

[mdfamily]

Thanks Mpmd, from what I read it has to be opened by end of year but can be funded later

[DMFA]

mdfamily wrote:

Thank you
Any idea why there are no 401k that can be opened online?
This is particularly bothersome because I work intensively (in multiple different states) and the post office is closed by the time I am done with work.
I noted that sep can be opened online

Why do you think I shouldnt be doing Roth IRA deferrals? I can do that on top of a 401k no? Last year I got a backdoor Roth IRA (or whatever it’s called).

Click to expand...

They have after-hours drop boxes, you know...Fidelity lets you do most of it online, but wants a couple things snail-mailed, at least last I checked. Not sure why they're still Stone Age.

You should be doing IRA as well. All the more reason to do the 401(k).

Fido allows incoming rollovers.

Have you looked at Schwab as well?