Solo 401k and money purchase plan

[Guest weprin]

Right now i have a paired program of a Money Purchase and Profit Sharing Keough. I have frozen the Profit sharing plan and opened a Solo 401k. Can you keep the money purchase plan and put in 10% then start a profit sharing plan with a safe harbor 3% contribution and 7% in the profit sharing ( since i am not incorp.) and also a 12000 salary defer. OR do I need to stop the money purchase plan. The reason why i would like to do this is because the money purchase plan is at Vanguard who do not have a solo 401K but I like their funds to invest in. Thanks.

[actuarysmith]

More Information Required.

What is your income level?

If it is high enough, you may not need the Money Purchase OR the 401(k), just a Profit Sharing Plan. (BTW, why in world would you need a safe harbor plan????? if it is just you, there is no ADP testing problem to solve )

I am sure that Vangard would have a prototype profit sharing document you could use and get around the solo 401(k) issue.

If your income is roughly $160K or above, you would be able to get a $40K deduction (i.e. 25% of pay) easily. This would also leave you with great flexibility.

If you income is substantially below $160K, then you probably should consider a solo 401(k).

Even if Vangard won't give you a solo 401(k) option, why don't you locate a TPA or CPA that handles plan admin and let them take of the plan document and tax filing. Then you could continue to use Vangard.

True, it may cost a couple of bucks a year (probably $500 - $950), but then you don't have to worry about compliance issues, you can continue to use Vangard, and get your $40K deduction - which will save thousands in excess of the plan admin costs.

[mbozek]

I have a question as to why you need to maintain a mp plan if you are self employed and have no employees. The max contribution you can make to all DC plans in 2002 is 40k (41 if you are over 50 and contribute $1k to a 401(k) plan) which if you are self employed requires net income from self employment of 200k. In 2003 you can contribute 2k if you are 50. You can make the 40k contribution to the PS plan. If you employ your spouse you can contribute lesser of 100% of pay or 40K to his/her account in a ps plan. Your tax benefit for maintaining a 401(k) plan for yourself is the extra deferral if you are 50 or older. If you have net income of 120K you can have a ps contribution of 24K plus 10K 401 k contribution (11k if you are 50) plus a benefit for your spouse.