I have a full time job that I contribute my 401K max contribution of $15,500 k per year + I max out a Roth IRA. I am also a consultant, is it possible to contribute to a retirement account for my consulting gig as well ?
Yes, it is. Possibilities are (for starters) SEP-IRA, Keogh, and solo-401k (while you can't do salary deferrals since you maxed out on your day job, you can still make the profit-sharing contributions).
Given the simplified rules around the solo-401k, I'd start by investigating that.
-- Rich Carreiro snipped-for-privacy@rlcarr.com
Yes, if you set up a qualified plan by the end of the tax year. There are numerous details but in your situation you will probably be able to defer an additional 20% of your consulting profit up to some limit (which is reasonably high, in the tens of thousands of dollars).
Many people do this through a brokerage's "prototype plan" but there are various other possibilities.
Steve
Even if I get a 1099 for my consulting gig, I can still create a Solo
401K ?
Yes, so long as you file a Schedule C for your self-employement income (or have certain other types of income) you can create a solo 401(k). One gotcha is if your business ever has employees, then you cannot use the solo 401(k) and would have to convert it into a different type plan, which is slightly messy.
Another gotcha is there is a filing requirement, which will eventually kick in, and after 2009 requires specialized software.
Steve
Yes. The solo-401k is designed for sole proprietors and
1-man LLCs/S-corps/etc.As a sole proprietor you can make a profit sharing contribution[*] of up to 20% of (profit - 1/2 SE tax) even if you maxed out at your day job and even if you get a match at your day job.
[*] the profit-sharing contribution can't be more than $46,000 (or perhaps $47,000 -- that limit changes each year and I can't remember the 2009 number).With a solo-401k for a sole prop., you have until the original due date of your personal return to make the contributions. However, the plan has to initially be set up by the end of the calendar year.
I'm familiar with Fidelity's plan. It is free (other than commissions and the like) and you have a totally self-directed brokerage account. And until total plan assets hit $250,000 there aren't even any forms to file with the IRS (aside from the initial SS-4 to get an EIN to open the plan under -- you can't open it under your SSN. If you already have an EIN for your sole prop, you can use that one.)
-- Rich Carreiro snipped-for-privacy@rlcarr.com
Yes, but is it wise to put all your "eggs" in the same tax basket?
An argument against this is that investment income is taxed about half the rate (long term capital gains) than 401K income (regular income tax). Tax laws change every decade, so this may not be true 30 years from now.
A supporting argument is that qualified retirement plans- 402Ks, IRA, SEPs- are protected from bankruptcy and most kind of civil judgments.
"Tax diversification", i.e save both ways, may be the answer. You many be forced to do this once you hit the retirement savings limits anyways.
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