FaceWallet retirement accounts

401k is a United States retirement system, that allows an employee to contribute part of their salary pre-tax to a retirement savings account. It is normally managed by the employer and the employer normally would not offer FaceFund as an investment option.

However, if you have some self employment income (i.e. received a 1099 Form for walking a dog or writing code on Upwork), you can set up your own self-employed 401k plan. FaceWallet can provide you with all the required documentation. Please talk to us in the help chat if you are interested. Even though its many PDF files, there is minimal reporting requirements, if the 401k value is under $250,000. Furthermore, even if you make $10 as a 1099 contractor, you can contribute the full $56,000 Solo 401k limit annually, and the contribution will get deducted from your other income (i.e. salary).

There are two types of 401k accounts, regular and ROTH. Regular account is just a tax deferral, when you retire you need to pay taxes on all withdrawals. Even more, the profit on investments is also taxed and there is no concept of a reduced rate for capital gains. Regular 401k makes sense if you make interest income (like LendingClub) or invest in Friends and Family startup where you will likely lose the principal. However, the gains on qualified small business stock are currently tax free on regular taxable accounts so investing in a successful startup might be better from post tax income. Regular 401k account might also make sense when your income is really high in one year, and very small the next year. Think of going to an MBA after working at Google and taking an early distribution that year, even with a 10% penalty. Furthermore, you can be in highest income bracket while contributing, but withdrawals can be distributed over many years and keep you in a lower tax bracket. You can also borrow money against the 401k during high income years, for example to buy a primary residence, and still defer taxes to a time when you might be in a lower tax bracket. You would essentially be paying interest on that loan to yourself, so there are no real costs.

Second type of 401k account is the ROTH account where you contribute after tax income, but the future earnings are tax free if withdrawn after retirement. It’s not unusual for a retirement account to have over 50% of its value comprised of earnings at retirement, so this is potentially a huge tax saving. Furthermore, if combined with a ROTH IRA rollover, the after tax contributions can be withdrawn after 5 years with no penalty, as long as you leave the profits in the account.

FaceWallet is your investment advisor and can help you set all this up. 401k is normally set up as a trust, which is managed by the trustee. Think of trustee as the CEO. Normally you would be your own trustee in a Solo 401k. However, for larger 401k plans and special situations, FaceWallet can also be the trustee, open a separate managed account for the trust on Interactive Brokers and act as a traditional investment advisor. Any separately managed accounts are linked to your FaceWallet app providing a very convenient overview.