Solo 401K and?

[MissMolly]

Hi all,

I have tried to research this all over the internet and feel I am getting conflicting information and was wondering if someone could help? I am 59, retired from state employment, receiving a pension, married. I also have a consulting business. I opened a Solo 401K at Vanguard last year and will be contributing the maximum amount allowed based on my profits for the year. My question is, are there any other tax efficient opportunities I can also take advantage of? Can I also do a Roth or an IRA? (or both) Any suggestions? I would appreciate any input from the members here.

Thanks

 

[Animorph]

You can do the Roth IRA if you are under the income limits. You can't do a deductible IRA because you are covered by a retirement plan at work (and the Roth will hopefully be taking up the full contribution amount anyway).

 

[samclem]

For this purpose, a Solo 401K is just like any other 401K: You can also contribute to a "regular" IRA (or Roth IRA, etc). At least I hope so, because I've done that in the past!

Here's a TurboTax online help answer that agrees with this:
Link to IRA and Solo 401K answer

Obviously, the regular income phaseouts for the IRA deduction still apply.

Be careful out there. You are just 10 years away from having to take RMDs from these tax-deferred accounts, so look ahead and see what that means to you in the future regarding tax brackets, etc. Everything you put into these accounts, and their earnings, will be taxed at your regular income rate rather than the (possibly far more favorable) LTCG and Dividend/Interest income rates if the money had been kept in "regular" after-tax accounts. Much depends on your present and future anticipated tax brackets. In my case it makes sense to use the Solo401K and tIRA contributions to get our present taxable income into the same bracket we'll probably see in retirement, but not much below that.

 

[samclem]

You can't do a deductible IRA because you are covered by a retirement plan at work

I don't think that's necessarily true. It depends on income level.

 

[Animorph]

You are right. I never qualified.

2013 IRA Deduction Limits - Effect of Modified AGI on Deduction if You Are Covered by a Retirement Plan at Work

Below $69k single or $115k married allows you to contribute something. Below $59k or $95k allows the max contribution.

 

[MissMolly]

Thank you both for your input. This gives me something to study and consider.

Be careful out there. You are just 10 years away from having to take RMDs from these tax-deferred accounts, so look ahead and see what that means to you in the future regarding tax brackets, etc. Everything you put into these accounts, and their earnings, will be taxed at your regular income rate rather than the (possibly far more favorable) LTCG and Dividend/Interest income rates if the money had been kept in "regular" after-tax accounts. Much depends on your present and future anticipated tax brackets. In my case it makes sense to use the Solo401K and IRA to get below our present taxable income into the same bracket we'll probably see in retirement, but not below much below that.

And Samclem, I understand what you are saying and this may be the better way to go since most of my savings are already in tax sheltered accounts.