How much shall I put into solo 401K?

[Anonymous]

Anonymous wrote:

Anonymous wrote:This is a complicated question, and we can’t really answer it did you. I would get Turbo Tax or some such and play around with different scenarios, with both regard to your current tax situation and retirement. If you’re going to have a lot of yearly income from your real estate in retirement, your tax bracket may be high enough that the tax deduction you get now may not be worth getting hit with taxes on big RMDs in retirement. Ideally, you’d have only as much income from RMDs as you actually need to live on.

You can manage non-qualified investments so that they produce little taxable income, so the question is whether you will be in a lower tax bracket in retirement when you realize the “income” from a qualified fund, and whether you’ll need the income in retirement, or whether you’d be better off paying the tax now and letting the money continue to appreciate in retirement without RMDs.

Same issue with paying off the mortgages — you’ll need to run the actual numbers and see how that affects your net taxable income over time, now and in retirement.

Thank you, this is my thinking as well. I just can’t figure out how to run this integrated analysis of all components. Do financial advisers offer this (without offering their products)?
I am concerned that at some point in older age I won’t be able to manage my RE as efficiently. What if I get sick, mentally disabled etc? There is only one heir who is mentally handicapped and won’t be able to help me in older age.

A fee based advisor will do that for you, but they're hard to find.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Max it out. You already have a lot of exposure to real estate.

But what instrument do I invest it when it's in my solo 401k? Is there a guaranteed cash-like 5% bond ETF or similar? I am concerned about investing it into S&P tracking ETF, it doesn't look like deferred taxation benefits from shielding some of the business RE income in solo 401k outweigh poor returns at this time.

Honestly, I just wanted to prepay the remaining mortgage on one of the homes I own in 6 years when my 2% mortgage rate will hike to 5%, or just getting another investment property as I always select only those at min 7% return. It's below stock market but guaranteed, I never had a nerve watching hundreds of thousands evaporate on brokerage accounts

The time to buy is when they market is down, and right now, the stock market is down and the real estate market is still near its peak. If estate makes you comfortable, buy real estate. However, I have relatives like you who only buy real estate and some have done very well because they got lucky and bought in hot markets and saw lots of appreciation, and some died broke because their real estate value stagnated. Real estate is not risk free (it’s just looked that way if you lived in DC over the past ten years) and the carrying costs of maintaining property at high level are considerable. Do you really want to put all your eggs in one basket? I do own some real estate investments via REITS, but there’s no way I would invest even the majority of my assets in one sector.

The building next door to mine is over 100 years old, the 3rd generation of owners are still living off this income. It’s central DC. REITs are managed by other people who don’t have your best interests in mind, and you are remotely not familiar with carrying costs of the RE they hold. It’s totally different from self managed high quality RE. Carrying costs are not as high and you can always exchange or expand using 1031 to a larger newer project

Sure they have income, but did they maximize their investment? I inherited property that was completely paid for, but between property taxes, insurance, termite bond, and local landlord licensing fees, the ROI wasn't that great (and this was in a hot California coastal market). That's if you manage the property yourself, which means you have to deal with getting the HVAC or busted plumbing repaired in the middle of the night. Add property management fees if you don't want to do that. Maintaining property at a high level is also not cheap -- renters are *hard* on houses & it needs constant investment I sold at the top of the market and, even with the recent downturn in the stock market, I've done much better with my investments and I don't have to deal with tenants.

If you sold you must have lost about 30% on face value of the RE to taxes same year. You are net zero actually. I can borrow against my property up to 70% of its’ value, earn healthy return on the total value of the new property (not just my own money in it). You cant trade on margin like that unless you are a professional investor who is familiar with bets of large investment banks same money they buy/sell on margin. Plus tax benefits - you can’t exactly match it with any stock
RE is a business that requires knowledge and local presence, on that you are correct. It gives commercial scale leverage to small folks who otherwise wouldn’t have such an opportunity with stocks.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:This is a complicated question, and we can’t really answer it did you. I would get Turbo Tax or some such and play around with different scenarios, with both regard to your current tax situation and retirement. If you’re going to have a lot of yearly income from your real estate in retirement, your tax bracket may be high enough that the tax deduction you get now may not be worth getting hit with taxes on big RMDs in retirement. Ideally, you’d have only as much income from RMDs as you actually need to live on.

You can manage non-qualified investments so that they produce little taxable income, so the question is whether you will be in a lower tax bracket in retirement when you realize the “income” from a qualified fund, and whether you’ll need the income in retirement, or whether you’d be better off paying the tax now and letting the money continue to appreciate in retirement without RMDs.

Same issue with paying off the mortgages — you’ll need to run the actual numbers and see how that affects your net taxable income over time, now and in retirement.

Thank you, this is my thinking as well. I just can’t figure out how to run this integrated analysis of all components. Do financial advisers offer this (without offering their products)?
I am concerned that at some point in older age I won’t be able to manage my RE as efficiently. What if I get sick, mentally disabled etc? There is only one heir who is mentally handicapped and won’t be able to help me in older age.

A fee based advisor will do that for you, but they're hard to find.

Can you recommend one ?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm making money in my Vanguard 2040 fund, so that's where I've put mine. I assume you understand the max 25% of your W2 wage limit with the solo 401K?

It shows me -17% YTD, how is it making money for you ?

DP. I'm down 6% YTD, but even after that I'm still up about 25% since January 2020. You have to be willing to ride out the ups and downs.

FWIW, the REITS that I'm invested in have returned 28% over that period.

Vineguard 2040 is minus 17% can you provide a link to your fund ?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm making money in my Vanguard 2040 fund, so that's where I've put mine. I assume you understand the max 25% of your W2 wage limit with the solo 401K?

Yes I do. Do you also realize the employer /your single owner business entity can match that 25% ?

+1 We contribute a combined $120K into our 401k solo from our self employment income, but we are also 50+ so we get the extra catchup. But yes, you can contribute both your employer and employee's portion into your 401k. Employer's portion is a % of your self employment income; employee's portion is fixed.

OP here, yes I know that can contribute 50-60k this year combined my abs employer contribution. The question is whether it’s worth it (basically contribute, keep it in cash on 401k, or some other instrument) vs keeping after tax in gov bonds to prepay mortgage or reuse in business in 6-7 years

that's a question to your financial advisor, and how risk averse you are. No one has a crystal ball.

FWIW I put the max into our 401k, and our financial advisor manages it all. The stock market will eventually rebound, so you want to buy while it's down.

If you can find a high rate to lock in for 2 to 3 years, like 5%+, maybe do that, but I'm pretty sure in 3 years the market will be back.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm making money in my Vanguard 2040 fund, so that's where I've put mine. I assume you understand the max 25% of your W2 wage limit with the solo 401K?

Yes I do. Do you also realize the employer /your single owner business entity can match that 25% ?

+1 We contribute a combined $120K into our 401k solo from our self employment income, but we are also 50+ so we get the extra catchup. But yes, you can contribute both your employer and employee's portion into your 401k. Employer's portion is a % of your self employment income; employee's portion is fixed.

OP here, yes I know that can contribute 50-60k this year combined my abs employer contribution. The question is whether it’s worth it (basically contribute, keep it in cash on 401k, or some other instrument) vs keeping after tax in gov bonds to prepay mortgage or reuse in business in 6-7 years

that's a question to your financial advisor, and how risk averse you are. No one has a crystal ball.

FWIW I put the max into our 401k, and our financial advisor manages it all. The stock market will eventually rebound, so you want to buy while it's down.

If you can find a high rate to lock in for 2 to 3 years, like 5%+, maybe do that, but I'm pretty sure in 3 years the market will be back.

Where do I find instruments with such high rate ? Is it guaranteed by financial advisors ?