Optimizing pre tax dollars retirement and where to open a SEP

[glaucia1023]

Hi all.

I have a 401k I max out every year through my employment, this year will include the catch up contribution, maxing at 61k (turning 50 in 3 weeks).

My husband has a part time job with the city of Seattle and has a 457 deferred compensation plan.  Currently he defers 80-90% of it (even though we asked the payroll dept to defer every single dollar up to 18K, it just doesn't happen) and was able to defer 10k for 2018.

He also has a side job LLC and would like to contribute to a SEP IRA.  The 20% of his net income that can be put into a SEP  IRA this year is about $1600.

Last December I opened an individual IRA for each of us at Vanguard and funded mine with $5500 and his $100.  Converted both to a Roth IRA a few days later (still in December).  So now we have each a zero balance IRA and a funded Roth IRA with Vanguard).

My plan:

1) Open a SEP IRA for him like today (because at this point it's the only option we can contribute pre tax for year 2018).

2) Open a solo 401k for his self employment gig for 2019.  Roll over the SEP IRA funds into the solo 401k later this year.  Close the SEP IRA.

3) Contribute the maximum for year 2019 into his solo 401K - Does the fact that he has an employer sponsored 457 plan limit the amount he can contribute into his solo 401K?  If that's the case, how do I calculate how much I can contribute up front into the solo 401k?

4) Contribute again to both of our post tax IRAs later this year because I don't have the funds now (mine 7k with the catch up contribution for 2019 and his 6K).  Convert immediately into Roth IRAs again (all for 2019 year).

Questions:

Is this the best plan to maximize our pre tax contributions?

Where to open the SEP IRA and solo 401K for husband:  Etrade  (because they accept rollovers).  Unless Vanguard miraculously changed their rules and now accepts rollovers on their solo 401k - please tell me.

Are you aware of any referral codes/promotions for opening a new Etrade SEP and solo 401K?

Am I missing anything?

Thanks for any insight.

 

Handy dandy table from WCI on where to open yur 401K

Vanguard	Fidelity	Schwab	Etrade	TDAmeritrade
Index Funds	Investor Shares	Spartan and ETFs	ETFs	ETFs	ETFs (some commission free)
Roth option	Yes	No	No	Yes	?
Loans	No	No	No ?	Yes	?
IRA Rollovers	No	Yes	Yes	Yes	?

[ENT Doc]

Your plan sounds solid. I liked Fidelity for ease of set up, competence and rollover option. Your husband will be able to put in 19k for employee contribution and additional 20% (profit-1/2 SE tax) if he has enough profit to justify this. 457 contribution is separate.

[spiritrider]

glaucia1023 wrote:

My husband has a part time job with the city of Seattle and has a 457 deferred compensation plan.  Currently he defers 80-90% of it (even though we asked the payroll dept to defer every single dollar up to 18K, it just doesn’t happen) and was able to defer 10k for 2018.

Click to expand...

Employee deferrals can not be 100% of W-2 wages, because mandatory deductions (FICA, withholding, employee share of benefits, etc...) must come first.

As @ENT Doc said, he can make employee elective contributions of up to 100% of self-employed earned income (business profit 1/2 SE tax) not to exceed the limit (2019 = $19K). He can also make employer contributions of 20% of self-employed earned income, but is limited to (self-employed earned income - employee elective contributions) / 2. With $8K of self-employed earned income, he can only make employee elective contributions of $8K and no employer contributions.

 

[jfoxcpacfp]

I would also consider the ability to fund a Roth 401k in your comparison list. You may not plan to use it at the moment, but I’d keep my mind open to the possibility that he may not want to reduce taxable income for the 199A deduction (not sure what he’s doing) and he may want to change to Roth when the market is down. It’s just convenient to have that option and I see no reason to bypass the added flexibility. Any physician with a side hustle should also consider this.

On your list, TDA and, I believe, ET offer it. Don’t know about Schwab, but know that Fido doesn’t.

You are planning what I refer to as a backdoor solo-k. Sounds like you have it down pat; included the link for others who might be interested.

[spiritrider]

To add a little to @jfoxcpacfp's post.

As she stated, having the ability to do Roth 401k contributions is valuable. If he makes a 100% pre-tax employee deferral, there will be no QBI left to take the 20% QBI deduction. Etrade and TD Ameritrade offer designated Roth accounts, Fidelity and Schwab do not. The determination of whether that matters, is subject to your personal circumstances.

Also, you might want to strongly consider Etrade. They have a unique offering among the mainstream one-participant 401k providers. They allow you to elect In-plan Roth Rollovers (IRR) in their Individual 401k plan adoption agreement. This allows you to do an in-plan Roth conversion of pre-tax employee elective contributions, employer contributions and rollover contributions (such as from the SEP IRA). Whether this is advantageous to do this in any given year it up to you. It is just a nice to tool to have.

[jfoxcpacfp]

spiritrider wrote:

Also, you might want to strongly consider Etrade. They have a unique offering among the mainstream one-participant 401k providers. They allow you to elect In-plan Roth Rollovers (IRR) in their Individual 401k plan adoption agreement. This allows you to do an in-plan Roth conversion of pre-tax employee elective contributions, employer contributions and rollover contributions (such as from the SEP IRA). Whether this is advantageous to do this in any given year it up to you. It is just a nice to tool to have.

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Thanks for the tip - I certainly didn't know that and will pass along.

[Faithful Steward]

You need to ensure that your Solo 401(k) custodian will allow your husband to roll his SEP into the Solo 401(k). Some, including Vanguard I think, will not accept SEP IRAs.