Make sense starting solo 401k with survey money?

[JK]

Current situation: PGY2 resident who just started signing up for various medical surveys (per the recs of peers & this site) and am starting to make some solid additional money. While I am doing surveys through multiple companies, several state that they need to send tax information when your totals are >$600, which mine will be this year (I'm already at 500 with that particular company). I'm already maxing out my current 403b, Roth IRA, HSA (loans paid off) but was hoping to get some answer & opinions on the following:

-For those who have done these surveys before, do you get paid as 1099 money? Are you then eligible to contribute additional money as a employer to a retirement account (solo 401k, SEP...)? Just curious as I've never done this before.

-While I'm projecting anywhere from $1-2k made in a calendar year, is this worth setting up a solo 401k, SEP, etc... or is it just not worth it for so little amount of money? I'm guessing some say no for that little amount, while others will likely argue that every extra dollar counts.

-If it does make sense, should I go with the solo 401k or SEP? I know several people here preach the solo 401k for the backdoor Roth option, but I am currently able to make direct Roth contributions for the next 2 years (2016, 2017). After speaking with a Vanguard rep, he mentioned doing the SEP for less paperwork/fees roll that money into a Roth every year and then when I become an attending make the switch to solo 401k.

 

Am I overthinking this? Thoughts?

[TheGipper]

All I have to say is bravo. I wish I had half the financial sense of you when a PGY2...

Def not solo401k if you already max your 18k personal 401k limit, as you'll only be able to put in 20% of survey earnings as employer contributions.

Vanguard rep suggestion is solid, though as you mention you could skip the hastle now and just wait till your an attending and then put any more substantial 1099 $ in solo401k and also do backdoor Roth if that option is still legal.

WCI had a nice post once on pro/cons of SEP vs solo401k.

[jfoxcpacfp]

JK wrote:

Current situation: PGY2 resident who just started signing up for various medical surveys (per the recs of peers & this site) and am starting to make some solid additional money. While I am doing surveys through multiple companies, several state that they need to send tax information when your totals are >$600, which mine will be this year (I’m already at 500 with that particular company). I’m already maxing out my current 403b, Roth IRA, HSA (loans paid off) but was hoping to get some answer & opinions on the following:

-For those who have done these surveys before, do you get paid as 1099 money? Are you then eligible to contribute additional money as a employer to a retirement account (solo 401k, SEP…)? Just curious as I’ve never done this before.

-While I’m projecting anywhere from $1-2k made in a calendar year, is this worth setting up a solo 401k, SEP, etc… or is it just not worth it for so little amount of money? I’m guessing some say no for that little amount, while others will likely argue that every extra dollar counts.

-If it does make sense, should I go with the solo 401k or SEP? I know several people here preach the solo 401k for the backdoor Roth option, but I am currently able to make direct Roth contributions for the next 2 years (2016, 2017). After speaking with a Vanguard rep, he mentioned doing the SEP for less paperwork/fees roll that money into a Roth every year and then when I become an attending make the switch to solo 401k.

 

Am I overthinking this? Thoughts?

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• $600 is the threshold for sending a 1099, so that is what you'll get. The other option is a W2, and that is n/a.


• Seriously doubt you are maxing out your $18k discretionary employee contribution space at PGY2. (Edited as I just now re-read after @Tex post and saw your comment that you ARE maxing out your 403b - missed that, my bad. Didn't mean to imply that you were lying, so very sorry!)


• Regardless, I recommend the SOLO-k for these reasons:
  
  
  
  • The priority is not to put as much into a retirement account as possible, it is to set up a receptacle for future rollovers that you might otherwise not have. You are planning ahead for when you change jobs.
  
  
  • After you graduate, you will probably have a W2 job. You will no longer qualify to contribute directly to a Roth IRA but will have to use the "back-door". Odds are that you will also probably change jobs at least once in your career. At that point, you will have the choice with your retirement account to a) roll over to your new employer's plan, b) leave behind at your old employer, or c) roll out to an IRA. If you r/o to an IRA, any back-door Roth contributions will be taxable. If you have a SOLO-k set up, you will have another option d) roll out to your SOLO-k.
  
  
  • Even if you set up a SOLO-k with only $100, the above is still relevant for the reasons provided. It's not the amount, it's the account.
  
  
  
  


• If you are not self-employed later, you will not be able to set up a SOLO-k and roll your SEP over to it.


• If you will be self-employed when you graduate, the above is n/a - go ahead and set up a SEP and then roll into a SOLO-k later.


• For more information, download my Guide for Residents.

ps - agree with @Tex about treating your parents to a nice dinner!

[tex]

jfoxcpacfp wrote:

Seriously doubt you are maxing out your $18k discretionary employee contribution space at PGY2.

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50% of working Americans make less than 30k, which is around PGY2 salary - 18k - 5.5k - 3.35k... others live off of it

But given that you said loans are also paid off, how about you take your parents out to a $2k dinner?  

 

If you have an emergency fund, 20% house downpayment (or don't need one), I agree having a i401k with good investment options would be a nice thing to have around for the way careers in medicine are looking (more W2, more frequent moving than years past)

[jfoxcpacfp]

tex wrote:

jfoxcpacfp wrote:

Seriously doubt you are maxing out your $18k discretionary employee contribution space at PGY2. 

Click to expand…

50% of working Americans make less than 30k, which is around PGY2 salary – 18k – 5.5k – 3.35k… others live off of it

But given that you said loans are also paid off, how about you take your parents out to a $2k dinner?  

 

If you have an emergency fund, 20% house downpayment (or don’t need one), I agree having a i401k with good investment options would be a nice thing to have around for the way careers in medicine are looking (more W2, more frequent moving than years past)

Click to expand...

Thanks for catching my mistake - I have edited my response!

[consultpsych]

JK, do you mind sharing which survey companies are working out for you? My frustration is some survey companies ask you tons of questions just to rule you out.

My best luck is with Sermo surveys, but they are few and far between.

[Lithium]

Do you have to make enough for a 1099 to set up a solo 401k?  I would love to do something quick and easy - plasma donation, uber driving, or surveys, just to get this accomplished.  As someone who's been out of residency two years, I might qualify for a third of sermo surveys.  I get guidepoint invitations but never qualify for them either.  And then I have to pay a $5 processing fee to cash out unless I take the payout in Amazon dollars.

[40DayDream]

I second this.  How are you having so much success?  I signed up for a bunch of sites too after reading the blog and forum posts about surveys, and I am getting screened out of pretty much all of them except 2 SERMO ones.  Especially bad is M3 - I get almost daily emails from them but screen out of all of them.

[The White Coat Investor]

I wouldn't bother with a SEP or Solo 401(k) for $1-2K (20% of which is $200-400) UNLESS you had a need to get one in place so you had somewhere to roll 403b or 401k money into to allow a backdoor Roth or to get better investment options.

I'd probably do a personal and spousal backdoor Roth IRA and a Roth 403b before doing that, and most residents won't be able to even max those out. I know I couldn't. We were doing well to do the Roth IRAs.

[62cutlass]

Lithium wrote:

Do you have to make enough for a 1099 to set up a solo 401k?  I would love to do something quick and easy – plasma donation, uber driving, or surveys, just to get this accomplished.  As someone who’s been out of residency two years, I might qualify for a third of sermo surveys.  I get guidepoint invitations but never qualify for them either.  And then I have to pay a $5 processing fee to cash out unless I take the payout in Amazon dollars.

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I just wanted to basically re-ask Lithium's question.

I currently have made about $100 off surveys this year, but want to establish a Solo 401 for when/if I leave my current W2 job to roll over my 401A, 403B, and 457B.

I am a W2 attending. Employer only contribution to 401A and I max out my 403 and 457.

[spiritrider]

There is no IRS specific guideline on the amounts necessary. Their general guidance is that you have to be engaged in a trade or business with the intention of making a profit".

You certainly do not have to receive Form 1099-MISC from any given client. You already have already made a substantial start by having done surveys and not just one. I would feel comfortable doing this, especially if you do some on an ongoing basis.

[jfoxcpacfp]

62cutlass wrote:

I just wanted to basically re-ask Lithium’s question. I currently have made about $100 off surveys this year, but want to establish a Solo 401 for when/if I leave my current W2 job to roll over my 401A, 403B, and 457B. I am a W2 attending. Employer only contribution to 401A and I max out my 403 and 457.

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@Lithium was asking if you have to make enough to receive a 1099. Companies are required to issue 1099s only if they pay you at least $600 for services. However, you are still required to report and pay tax on the income, which allows you to report a "business" that qualifies you to contribute to a SOLO-k. If you can find a custodian that will set up a SOLO-k with only $20, you can set up a SOLO-k.

[Marko-ER]

I am asking for a junior colleague in a similar boat, who is a few years ahead of the OP.  As a junior attending, he is making 10-15K in 1099 consulting income.  It's his first year doing this, so he has had a lot of expenses setting up this side business.  He is maxing out 403(b) with our mutual full time W2 employer at 18K, but was still was wondering about solo 401K (I encouraged him to open it up with vanguard).  I mentioned, in terms of (self) employer-match 18.6% (20% - self employment tax), but I was not sure if that was based on the total income or "just" net profit (??)  Basically, if he plans to subtract all of these business expenses as deductions up front, that probably eats up his profit (though also reduces what's taxable under self-employment, right?), then he might not have much if any profit left.  Any advice is much appreciated.

Side note:  With potential Trump tax plan taxing corps at 15%, I wonder if any/most business-related deductions may be capped/eliminated.  Hmmm, maybe better go with the 'rumsfeldian' known knowns and deduct what you can this year.

[jfoxcpacfp]

Marko-ER wrote:

but I was not sure if that was based on the total income or “just” net profit (??)  Basically, if he plans to subtract all of these business expenses as deductions up front, that probably eats up his profit (though also reduces what’s taxable under self-employment, right?), then he might not have much if any profit left.  Any advice is much appreciated.

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Yes, it is based on net profits. Yes, that reduces his FICA taxes, which may be taxed only for Medicare if he has already maxed out SS.

[CFEonline]

jfoxcpacfp wrote:

If you have a SOLO-k set up, you will have another option d) roll out to your SOLO-k.

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Once you establish an individual 401k, is it legitimate to keep it open and continue sending rollovers to it indefinitely? Even if you are no longer funding it directly or otherwise engaging in self employment activities?