Financial Planning For Soloists with Sean Mullaney

You’ve got a bookkeeper, a CPA, maybe even a CFO/strategic financial resource for your business—when and where does personal financial planning fit in? Advice-only financial planner and author Sean Mullaney walks us through financial planning for Soloists:

The types of financial advisors Soloists are likely to encounter—how they work and are compensated (and why that matters).

The signs that tell Soloists you’ll likely get value from engaging a personal financial advisor.

How to get started and identify potential planners that will meet your needs (and why geography just doesn’t matter anymore).

One key question to ask any financial advisor candidate to assess whether they might be a fit.

Why a Solo 401(k) often beats a SEP IRA for tax-advantaged retirement savings.

LINKS

Sean Mullaney Blog | Book | LinkedIn | YouTube | Twitter

Rochelle Moulton Email List | LinkedIn | Twitter | Instagram

BIO

Sean Mullaney is an advice-only financial planner and the President of Mullaney Financial & Tax, Inc. Through Mullaney Financial & Tax, Sean provides advice-only financial planning for a flat fee. Sean writes the Plutus Award winning blog FITaxGuy.com on the intersection of tax and financial independence. He also has a personal finance YouTube channel and wrote Solo 401(k): The Solopreneur’s Retirement Account.

DISCLAIMER

This discussion is intended to be for general educational purposes and is not tax, legal, or investment advice for any individual. Rochelle and The Soloist Life podcast do not endorse Sean Mullaney, Mullaney Financial & Tax, Inc. and their services.

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TRANSCRIPT

00:00 – 00:23
Sean Mullaney: I think most of the value is just having that plan in place. Because what happens is people get confused by their finances. Every time something new happens in their life financially, oh, our profits doubled. Oh, there’s this new thing they’re talking about on TV or the internet, whatever it is, it creates questions. And when we don’t have a plan in place, it means we have to go down rabbit holes. We have anxiety, confusion.

00:30 – 01:10
Rochelle Moulton: Hello, hello. Welcome to the Soloist Life podcast, where we’re all about turning your expertise into wealth and impact. I’m Rochelle Moulton, and today I’m here with Sean Mullaney, who is an advice-only financial planner and the president of Mullaney Financial and Tax, Inc. Through Mullaney Financial and Tax, Sean provides advice-only financial planning for a flat fee. He writes the Plutus Award-winning blog, FITaxGuide.com, on the intersection of Tax and Financial Independence. He also has a personal finance YouTube channel and wrote Solo 401k, the Solopreneur’s retirement account. Sean, welcome.

01:10 – 01:14
Sean Mullaney: Sean O’Toole Rochelle, thanks so much for having me. Looking forward to the conversation.

01:14 – 01:48
Rochelle Moulton: Rochelle Penney Oh, me too. So I was talking to friend of the show, Erica Goodie, when I mentioned that I really wanted to have a financial advisor guest who wasn’t hawking investments and who also believed in simplicity in building wealth. And she immediately suggested we talk. And when I went to, I think it was 1 of your websites, and I saw that The Simple Path to Wealth by J.L. Collins was your favorite money book, too. I knew we had to have you on the show. And then when you asked me to add a disclaimer that I

01:48 – 02:23
Rochelle Moulton: wasn’t endorsing you or your services, which by the way will be in the show notes, I was over the moon certain you were the right person to speak to the subject of financial planning for Solowes. So Let’s start by taking a moment to categorize the different kinds of help that soloists can get with our personal financial life. Just by way of background, on the show before, we’ve talked about having a bookkeeper, a CPA to do your taxes, and even a CFO slash strategic financial resource for your business. And we’ve kind of vaguely mentioned having a personal

02:23 – 02:34
Rochelle Moulton: financial advisor, but we haven’t described those options. So will you walk us through the types of personal financial advisors a typical soloist might encounter?

02:35 – 03:10
Sean Mullaney: Yeah, absolutely Rochelle. So there are many different professionals out there and there are many different names for these professionals. I’m going to start off with 2 big archetypes, right? 1 would be a financial coach and 1 would be a financial planner. Not everybody’s going to look at the world that way, but that’s sort of how I look at the world to begin with, right? So what’s a financial coach? A financial coach is a person who coaches people in their personal finances, does not provide investment advice, right? So they tend to focus on things like budgeting and

03:10 – 03:43
Sean Mullaney: cashflow and those sorts of things. And that could be very important when you’re a soloist and you have uneven income and revenue in your business, right? Or you may be a soloist who’s doing great in the business but isn’t able to control the expense side of your life, right? A financial coach could be a great alternative there, right? So those are 2 use cases for a financial coach. Now, I think what you’re mostly getting at Rochelle is more the financial planner or financial advisor world, right? Yes. And that’s where the big legal thing that we’re introducing

03:43 – 04:25
Sean Mullaney: there is investment advice. So what that means is advisors, in order to professionally render investment advice, hey, so and so should buy ABC mutual fund. To do that professionally, you need to be licensed with either the SEC, the Securities and Exchange Commission, or 1 or more of the US states. There you get into, well, we have people who call themselves financial advisors, people who call themselves financial planners. Usually that’s somebody who, through their firm or their selves individually are licensed to provide investment advice. But investment advice is not the only piece of financial planning. There’s plenty

04:25 – 05:05
Sean Mullaney: more that goes on with personal financial planning than just the investment advice. Within this category, financial planners, financial advisors, there’s all sorts of different types of advisors out in the world. There’s so many now at this point. We could think about people who work for broker dealers who tend to be more selling that broker dealer’s particular investments. They tend to be very investment focused and there tends to be a reward for them to push their particular financial institution’s product. There are going to be some people even in this realm who might be selling insurance, right? That’s

05:05 – 05:07
Sean Mullaney: a whole other conversation.

05:08 – 05:08
Rochelle Moulton: You

05:08 – 05:47
Sean Mullaney: know, that model came in for a lot of criticism. And so what the industry developed over time is what’s referred to as the assets under management model, where you’re not necessarily pushing 1 type of investment. What you’re doing is you’re saying, okay, a client, you come to me and you take your investible assets and invest them through my firm. All right. And I will charge you a assets under management fee. So the fee for the financial planning is generally defined as a percentage, might be every quarter, every year, some percentage of the assets that that advisor

05:47 – 06:22
Sean Mullaney: is managing for the client. And that model has now come in for a lot of criticism. And look, of course I’m a biased source because I don’t sell products. I don’t have assets under management, but I’ll just give you my perspective. I’m not too fond of that because that increases our expenses and it has this drawback of you’re paying these fees that if you do well in your portfolio, they actually increase, right? Because your portfolio goes up and the fees increase. And I also think it overweights investments in terms of, well, wait a minute, investments are

06:22 – 06:58
Sean Mullaney: 1 component of our financial life. Why are we paying based on that 1 component of our investment life, right? So I could go on and on. I think there’s some real drawbacks to that assets under management model. What’s developed more recently, although this has existed in a small way for a long time, but it’s becoming more of a sort of force out in the world, is what’s starting to be referred to as advice-only financial planning. And the idea there is that the advisor is only offering advice. So they’re not offering assets under management. You can’t invest

06:58 – 07:24
Sean Mullaney: through this person, but they will, this person, their firm will provide you investment advice and other advice around your own personal finances. And I think in today’s era, that makes a lot of sense. Like forget me and my business for a second, but think about you Rochelle right now. Let’s say you have a great aunt or great uncle out there you don’t even know about and they pass away and they leave you Rochelle $100, 000.

07:25 – 07:27
Rochelle Moulton: Oh bless, on to him.

07:27 – 08:02
Sean Mullaney: Yeah, there you go. Right? So that’s a good outcome for you. Well, if this was the 1980s or 1990s, what were you going to do with that money other than put it in a bank account? I’m not here to say you’re not a smart woman, but most Americans in that situation probably would have needed some professional advice and couldn’t just pick up their phone and invest that money, right? Today, Rochelle, you could pick up your phone and in 10 minutes have that money invested in a plethora of well diversified, low cost, mutual funds, ETFs, whatever you

08:02 – 08:35
Sean Mullaney: want to your heart’s content, and you could pick the platform, you can pick the investments with your phone in 10 minutes. In that world, do we really need an assets under management model, right? Mm-hmm. So that’s why I think the advice only model is so attractive, at least to people like me. I say, well, what’s really needed is advice and knowledge. The investing platform piece of it. Well, most of us are addicted to these phones anyway, you know, and that’s a whole other conversation. But if we’re already addicted to this thing, we might as well use

08:35 – 08:36
Sean Mullaney: it to set up our investments.

08:37 – 09:13
Rochelle Moulton: Yeah, I mean, it’s so interesting to me when you think about how we look at these kinds of decisions. And I think sometimes we just do a knee jerk because, oh, we’ve always used insert name or my parents used so and so, so I do that. And I think stepping back and thinking about how you’re getting your advice is really important. And just for myself as an individual, I want someone who is going to give me non-biased advice. I mean, I guess you could argue we’re all biased on some level, but I don’t want somebody to

09:13 – 09:37
Rochelle Moulton: push product on me. And even when you have someone who’s highly ethical, if the system is designed in a different way. So, you know, what I’m hearing is it’s important to know what it is that you’re buying when you’re looking at these financial advisors, especially if you’re interviewing a few, because if you’ve never had 1 before, or you’re thinking of making a switch, chances are you’re going through some kind of a selection process.

09:38 – 10:13
Sean Mullaney: Yeah, Rochelle, you know, it’s interesting. Look, I’m a career changer, so I’m biased in this perspective. But I do think that the financial planning, financial advice industry makes things relatively opaque on the client end. And I think that is, that’s a drawback. If you’re a potential client of a financial planner, that’s a real drawback. However, we now live in a world, right? So if this was 20 years ago, and Rochelle, you’re looking for a financial planner in Palm Springs, California, you gotta get in your car and you gotta go interview 5 different people in 5 different

10:13 – 10:45
Sean Mullaney: offices. And oh, by the way, that’s in Palm Springs. Imagine if you’re in Century City, Los Angeles, right? You got to deal with LA traffic to do that, right? How horrible is that? Well, today, Rochelle, you can boot up your computer and most financial planners will have some sort of an intake form and some sort of ability to get 15 minute, 30 minute introductory meetings scheduled. So, you can, from the comfort of your own home, with your computer, interview 5 different financial planners. They don’t have to be in Palm Springs. They can, in theory, be almost

10:45 – 11:18
Sean Mullaney: anywhere in the country. And so in a sense, yes, the industry is opaque, but thank goodness for computers and Google meetings and Zoom and whatever in terms of, hey, I can actually get some look and feel. And I get that the person isn’t in your office, you’re not in the same breathing space with them. But I like to joke, you know, I’m not a dentist. I don’t need your molars in my office to render you financial advice, right? So it is nice that you can meet with 5 of these people without getting in your car and

11:18 – 11:47
Sean Mullaney: You ask them a bunch of questions and you understand what the fees are you learn how you fit in with the person, right? I like to say there’s no perfect financial planner for anyone out there But there are plenty of good financial planners out there for most folks. And so, you know, you have to make this judgment based on a whole host of things, fees, what are you actually getting, but also what’s the connection with the person, right? How do you sort of connect with that person? I think that’s a big thing to consider as you’re

11:47 – 11:49
Sean Mullaney: interviewing potential financial planners.

11:49 – 12:15
Rochelle Moulton: Absolutely. No matter what, you cannot ignore the vibe that you get from the person and whether you’re going to be able to work together. But so what are some of the signs that tell soloists that they get value from engaging the right personal financial advisor because lots of people don’t have 1. When should they start thinking about, actually I use the word should, when might it make sense to start thinking about engaging a personal financial advisor?

12:15 – 12:43
Sean Mullaney: Yeah, that’s a great question Rochelle, and it does vary person to person. I’ll say a few things on that. There’s no like, this is exactly the time in your life you need a financial planner. I will say most folks coming out of college probably don’t need a financial planner at that point, right? They need some blocking and tackling. I feel like in today’s world, you can go to sources, podcasts, YouTube, internet, books, like The Simple Path to Wealth by J.L. Collins, for example.

12:43 – 12:49
Rochelle Moulton: Yeah, I was gonna say, that’s the first thing I would hand to a college graduate. That is my go-to gift for college graduates.

12:49 – 13:21
Sean Mullaney: Yeah, there you go, right? You probably are at a point there where, hey, you know what? You don’t really need to bring in a professional, but you also don’t want to get to the point where you are a soloist, your business has done well, and now you have the earnings from that business all over the place invested in a hodgepodge of different things that you never had any intention around. In addition to that, it’s time to be thinking about financial planning, I think include, but are not limited to, you get married, you have kids, that can

13:21 – 13:56
Sean Mullaney: be a big 1. Your business or your W-2 work, if you’re not a soloist, starts to be rather profitable and you’re at a place where you can invest a substantial amount beyond some basic investing, those are sort of times where, hey, you know what? Working with a financial planner now might make some sense. Also, nearing retirement can also make sense to work with a financial planner. I think what you’re looking to avoid is to get it at a position where either the wealth went out the door and you just don’t know where it even went to,

13:56 – 14:22
Sean Mullaney: or you have the wealth but it’s in 10 different brokerages or it’s sitting in cash or all these things where we didn’t have a plan in place and now we’re not in as good a place as we could have been because we didn’t have a plan in place. So I almost defined it in the negative. You wanna avoid being that person where you made a bunch of money in your business ventures, but you don’t have much of it left over. It’s like, what happened there, right? You didn’t have a plan to invest it and to save

14:22 – 14:28
Sean Mullaney: it. You don’t wanna be that person who looks back and says, boy, if I had a plan 20 years ago, I’d be in a much better place.

14:28 – 14:55
Rochelle Moulton: Exactly. And we’ll talk about this in a little bit, but it does happen a lot with solos where they have a really, really good year and then April rolls around. Or if they’ve really paid attention, maybe February rolls around and they realize they have a big tax bill due. So let’s put a pin in that and we’ll come back to that. So if somebody listening wanted to explore hiring or swapping out a personal financial advisor, where would you suggest they start? I know you said oh, you know, you can have meetings, but how do you get

14:55 – 14:57
Rochelle Moulton: that initial list?

14:57 – 15:32
Sean Mullaney: Yeah, that’s a great question. And I will say I myself struggle with answering that question because there’s this temptation to find a credential or a group or a category or a label and say, okay, I’m going to reach into that bushel and every Apple will be a good Apple. Well, every bushel has a bad Apple, right? So I struggle to say, oh, just go to this organization or go to this credential and just get somebody who’s a member of that organization or on this network or has this credential and now you’re good and then you just

15:32 – 16:03
Sean Mullaney: pick within that. I struggle with that. What I’d say is a couple things. Financial planners are starting to have more and more of a voice out there. So I would say if I were looking for a financial advisor, I would look for podcasts, YouTube, blogs, and you’ll actually probably run into more financial planners than you might think, right? So that’s 1 place. 2 is I will say you can search locally, right? That’s just an easy way, you know, hey, I live in such and such a city, people in my city tend to have these sorts of

16:03 – 16:35
Sean Mullaney: issues in their financial life. It’s not the worst way to do it. And then 3, I would say, if I was looking for a financial planner, I personally, of course, I’m biased in saying this, but I’ll say it, I would be looking for an advice only planner. And most advice only planners, although I will say, I don’t think this is 100% true, but most advice only planners in today’s environment tend to brag about that. Yeah, exactly. If you look at my website and you look at other advice only planners websites, they tend to say, yes, I’m

16:35 – 16:43
Sean Mullaney: an advice only financial planner. So if you start doing some Googling around advice only financial planners, or just, you know, the other thing too is you can ask your friends.

16:44 – 16:53
Rochelle Moulton: That’s where I was going Because I feel like that’s what people start with. And sometimes that’s how they wind up with non-fee only financial planners.

16:54 – 17:22
Sean Mullaney: What you could do Rochelle is say, okay, you know, friend, family, in-law, whatever it is, who do you use? Okay, they get the person. Now you can do the diligence on that person. You don’t have to immediately schedule a meeting, right? You can just say, all right, I’m going to just do the diligence on this person. Oh, their assets and her management, that’s not what I’m looking for. Or they’re not saying their advice only. Another 1, we talked a little bit before the show, it’s generally good to have somebody who’s a fiduciary. Again, I don’t want

17:22 – 17:52
Sean Mullaney: to say like, oh, if they’re a fiduciary, they’re good and that’s what you need. No, no, that’s not what I’m saying. I think that is a really good question to ask though. That fiduciary basically means in rendering services to the client, the advisor has to put the client’s interests first. I think that is a good question to ask. It’s 1 of many questions, but again, it’s another 1 of these things where we’re trying to solve for this puzzle of the right fees, the right service, the right feel with the advisor, and that’s 1 of those puzzle

17:52 – 17:57
Sean Mullaney: pieces. It’s definitely 1 of those things to look at, but it’s not the end of the inquiry.

17:58 – 18:17
Rochelle Moulton: I’m kind of chuckling because most of our audience are consultants of some form and it’s in our DNA to do what is best for the client. So we may make the assumption that other professionals have a responsibility and especially a fiduciary responsibility, but it isn’t a given. You want to check on it.

18:17 – 18:44
Sean Mullaney: That’s right. Yeah, it doesn’t hurt to check, right? And no advisor who is a fiduciary is going to get upset with you for asking that question. I think people are like, oh yeah, people do due diligence. That’s fine. Right? So I mean, by the way, You also can just use LinkedIn, right? Most of us are on LinkedIn, right? So there are these things that are available and no advisor is gonna be, oh, so-and-so was peeking at my LinkedIn page. I mean, I would hope not. I mean, it’s a publicly available thing. Like, what do I care

18:44 – 18:50
Sean Mullaney: that a prospective client looked at my LinkedIn page, right? Frankly, they probably should, right?

18:50 – 19:23
Rochelle Moulton: Well, and a lot of fiduciaries struggle to introduce the concept. So if a client comes and says, are you a fiduciary? They’re like, yes, I am. Let me tell you what that means. So I could see that that would be a plus. I just want to sort of underline that point because I think we make assumptions, especially as consultants, that everyone has the same responsibility that we do and they don’t. They don’t. Okay, so let’s say that I’m a soloist, but I also have a spouse with a salaried job. So how important is it to find

19:23 – 19:32
Rochelle Moulton: a personal financial advisor who understands the ins and outs of business ownership in addition to the tax rules, investments, and opportunities?

19:33 – 20:06
Sean Mullaney: Yeah, so I tend to be rather tax-focused in my approach. I come from a corporate tax background and have been interested in things like retirement accounts for a long time. So I personally tend to be very tax-focused. I was talking to a gentleman who’s thinking about becoming a financial planner, is doing coursework for it, whatnot. And I said, look, not every financial planner needs to be Sean Mulaney on the taxes, meaning none of us are going to know everything, myself included, by the way. I have this sort of brand around taxes and retirement planning and whatnot.

20:06 – 20:37
Sean Mullaney: That’s not a necessary, not everybody out there needs somebody who’s like the world’s best thinker on investments or insurance or taxes, right? I’m not claiming to be the world’s best thinker on any of those things. So you’re going to find when you work with a planner, they have different levels of interest and expertise in different things. But the other thing I want to step back and say, sometimes most Financial planners can say, you know what, once in a blue moon, I come up with the best mousetrap out there. I just come up with something clever that’s

20:37 – 21:09
Sean Mullaney: great. But truth be told, that’s not really where I think most of the value in financial planning is. I think most of the value is just having that plan in place. Because what happens is people get confused by their finances. Every time something new happens in their life financially, oh, our profits doubled, oh, there’s this new thing they’re talking about on TV or the internet, whatever it is, it creates questions. When we don’t have a plan in place, it means we have to go down rabbit holes, we have anxiety, confusion. When we have a plan in

21:09 – 21:39
Sean Mullaney: place, the point isn’t to answer every last question about our financial future. But 1 of the big points about having that plan in place is, okay, something came up, whatever it is. My profits doubled, my profits halved, this new thing is being talked about on Twitter, whatever it is. All right, I take that and compare it against my plan. What does my plan tell me to do with that? Not that my plan answers every last question about that, but my plan talks to me about me and my situation and will provide a lot of insight and

21:39 – 22:06
Sean Mullaney: will probably make the question either sort of become obvious what its answer is or make it irrelevant because hey, I’m already on a plan and I can execute against this plan and I’m still financially successful. I don’t have to worry about the shiny objects for somebody else, right? I don’t need to worry about it because I’m financially successful. So I think that’s the big thing. Yes, it’s great to have people with particular expertise and I think that’s nice and you could always ask people about those sorts of things and what they know. And the other thing

22:06 – 22:41
Sean Mullaney: too Rochelle I’d say about this is, it can be tough in a 30-minute introductory meeting to test an advisor for their technical knowledge on investments or taxes or whatever. What might be a better way of approaching the issue is asking them about their typical clients. Not that an advisor must be niched down, I only work with solopreneur podiatrist, right? No, you don’t have to niche down that much. But it is interesting to know, who does this person typically spend their time with in terms of rendering financial advice? Oh, okay, do I look at all like that

22:41 – 23:12
Sean Mullaney: person? Do I look pretty close to that person? And some people are very niched down in this financial planning space. Others are a little more generalists, right? I’m somewhat niche down. I’m not that niche down. I tend to be accumulators, those thinking about retirement and maybe the first few years of retirement. That’s not really very niche down, but it’s also not everybody in the world. And there are certain types of folks I don’t generally work with just because they have special financial planning needs. But anyway, so I think that’s maybe a way of approaching it is

23:12 – 23:19
Sean Mullaney: understanding what type of clients the advisor works with, I think can be very helpful if you’re trying to pick out an advisor for yourself.

23:19 – 23:55
Rochelle Moulton: Yeah, I love that. I was doing some research and I found, I kind of tripped over an advisor who said that they only dealt with female founders, but they had so much experience with stock options and taxation stock options in private companies. And I thought that’s an example of someone who would be really valuable to a very specific niche client. So I like that advice. Okay, so I want to switch gears a little bit because I want to talk about retirement and the tax advantage ways that soloists can save for it. So I want to dive

23:55 – 24:24
Rochelle Moulton: into SEP IRAs and solo 401ks and this may sound like I’m speaking a different language to some people, But full disclosure, when I opened my solo 401k, Sean, I felt like such a baller. It simply astounded me how much money I could legally tuck away for the future. So why don’t you compare and contrast the Solo 401k with the SEP IRA. Like who can have what, what can we sock away? Give us a little primer on that, would

24:24 – 25:00
Sean Mullaney: you? Yeah, absolutely, Rochelle. So for a long time, the main Solopreneur, so I’m assuming you have no employees, right? The main solopreneur retirement account was the SEP IRA. Folks loved them, tax return preparers loved them because the deadline for them is very late. It’s well into the following year. The SEP IRA offers an employee, you’re deemed to be your own employer, whether it’s a Schedule C on your tax return, so you just work in your own name or through what they call an LLC, a limited liability company that’s disregarded, or even an S corporation, right? You

25:00 – 25:35
Sean Mullaney: might have a W-2, that’s a different conversation, but you work for yourself and you’re deemed to be the quote unquote employer of yourself and you can make an employer contribution to a solo 401k. And let’s say you show something like $100, 000 of schedule C profit, right? Your revenue less your expenses. It comes out to something like $100, 000 you’re looking at something like $18, 600 of SEP IRA contributions and today that actually could be a Roth SEP IRA That could be a traditional deductible SEP IRA. So that’s pretty good. I mean, that’s getting $18, 000

25:35 – 26:13
Sean Mullaney: in change and maybe taking a tax deduction for it for a traditional. That’s pretty good. But then, basically this is about a little over 20 years ago, the law has changed and the Solo 401k became, in my opinion, a better alternative to the SEP IRA. And why do I say that? Well, I say that mostly because the Solo 401k offers that employer contribution, that 18, 600-ish, it’s a little less than that, but let’s just call it 18, 600 for the employer contribution. And it offers an employee contribution. So you’re a soloist and you know, you’re, you’re

26:13 – 26:52
Sean Mullaney: both, you’re an employee and an employer. And guess what? That looks like a regular 401k. So in theory, we run some numbers real quick here. We’re looking at a 23, 000 max employee contribution to a traditional Endora Roth Solo 401k plus the 18.6 as the employer and now our limits over $41, 000. So I’m a big fan of this Solo 401k because it has these flexible very high limits And it’s not that every solo 401k out in the world needs to be maxed out every year. That’s not what this is about. For some people, maybe it

26:52 – 27:24
Sean Mullaney: is. I mean, maybe you’re just, you’re balling, you’re making $300, 000. You gotta get some tax deductions. Let’s max this thing out. That’s great. But yeah, The Solo 401k tends to be just a great way of 1, saving money in a tax advantage way for retirement, and then 2, controlling your current tax burden. I’m a soloist myself. I like being a solopreneur, But being a solopreneur is a great way to pay a lot of taxes because we pay income tax, we pay payroll tax now, or they call it self-employment tax if it’s Schedule C. Now, the

27:24 – 27:42
Sean Mullaney: Solo 401K doesn’t reduce payroll tax, but it does reduce the pesky income tax. So yeah, I think for a lot of solopreneurs, because the limits are so much higher for a solo 401k, in many cases, I tend to favor the solo 401k over the SEPI array.

27:42 – 27:57
Rochelle Moulton: Now, in the example, you used $100, 000 of pay and the limit came out to about 41, 000 in 2024. What’s the max that you can contribute to a combination employee and employer money to a solo 401k?

27:58 – 28:32
Sean Mullaney: It depends on your income, But if your income is high enough, in theory, you could get $69, 000 into a solo 401k. Now your income has to be even higher, but you could get the same amount into a SEP IRA, but you have to be a very, very high income at that point. You can do this at a much lower income for the solo 401k and that’s between the employer and the employee contribution. And then if you’re over 50, you can get an additional, I believe it’s 7, 500 in there. So it’s the 2024 number, I

28:32 – 29:04
Sean Mullaney: believe is 76, 500 for the solo 401k. And oh, by the way, the Sepire doesn’t enjoy that. They call it a catch-up contribution. So it’s really powerful in terms of you can make, you know, You have to make a decent amount of money to get all that money in there, but you’d be surprised that it’s not as much as you might think it is. Yeah, even at very low levels, like I said, not very low levels, but $100, 000 of Schedule C profit is, when you’re a soloist, that’s really good. But it’s also, you’re not at

29:04 – 29:10
Sean Mullaney: Apple computers and you could still get more than 40% of that into a solo 401k, that’s pretty good.

29:10 – 29:29
Rochelle Moulton: It’s very, very good. So you can see why I felt like a baller when I first opened my account. I remembered saying, why didn’t I do this sooner? And that’s 1 of the reasons why I wanted to bring this up on the show so that if you’re eligible for a Solo 401k, at least investigate it with your financial advisor to see if it can work for you.

29:29 – 30:00
Sean Mullaney: Well, yeah. And Rochelle, there’s actually just a little bit of history I’ll throw in with that. Yeah. So before the year 2001, there was very little practical difference between the Solo 401k and the SEP IRA, just the way the rules worked. So there was very little difference in terms of those contribution limits. And the SEP IRA, you could fund in the following year. And if you file a tax return extension, you could go out to September, October. So the tax return preparers love the SEP IRA. And back then it was usually the right advice. Yeah, just

30:00 – 30:34
Sean Mullaney: do the SEP IRA and you can worry about it later. You don’t have to fund it during the year. Fantastic. Then in 2001, they changed the tax law and they made the solo 401k a lot more attractive. It happened in a different time though. By the way, This was only 3 or 4 months before 9-11 when this happened. You didn’t have Twitter and YouTube and podcasts, and they did big tax cuts back then. They lowered the capital gains rate on lower earners to like 5%. They increased the contribution limits for things like Roth IRAs, traditional IRAs.

30:34 – 31:08
Sean Mullaney: There was a lot in this tax package. Back then, we just didn’t have as much independent media, bloggers, YouTubers, Twitter. This thing sort of got lost in the shuffle. The solo 401k was very advantageous, but the deadline didn’t get extended. Back then it had to be done, the employee contribution had to be done during the year. It was just very clunky. And so basically the tax return preparers, or generally speaking the employee contribution had to be done during the year in a general sense. The tax return preparers were like, no, we want to deal with it

31:08 – 31:33
Sean Mullaney: during their tax return. The SEP IRA was still the favorite thing. And 20 plus years later, a lot of tax return preparers never lost that. They just kept going SEP IRA, SEP IRA, SEP IRA. There’s some history there in terms of why the sepire continues to be more popular, even though for a lot of solopreneurs, a lot of soloists out there, you’re probably going to be better off in terms of limit going with the solo 401k.

31:34 – 31:41
Rochelle Moulton: Yeah. So your book, and I read it from cover to cover, I loved it, by the way. I just want to say that.

31:41 – 31:43
Sean Mullaney: Well, thank you very much, Rochelle.

31:45 – 32:19
Rochelle Moulton: It spoke to all parts of Financial Geek to me, but it wasn’t written like a geek. I just want to make that clear. It’s very clear. Actually, I find it compelling reading. Now, it does have an exceptional amount of detail on the impact of using a solo 401k to save for retirement in a currently tax advantageous way. It’s truly a way to DIY yourself with the right choices. I mean, if somebody wanted to follow your book from beginning to end, they could figure out with some work, probably with their CPA, what to do. But for those

32:19 – 32:39
Rochelle Moulton: who don’t want to study all the ins and outs of the tax code, what should they take to their CPA and or financial advisor for discussion about this? And when, because I feel like to your point, the discussions happen at tax time. That’s April when we could have been having the discussions the year before and taking action the year before.

32:40 – 33:11
Sean Mullaney: Yeah, I think that’s a great point, Rochelle, in terms of the timing. So what I recommend to most folks is do the tax planning during the year. There’s no way that that really hurts you and almost certainly it’s going to help you. So what I would say is this, if you are a solopreneur and you feel like you’re going to make a decent amount of money, well, now I think you have to take 2 things to your advisor, whoever he or she might be. 1 is literally, hey, what do we have to get set up and

33:11 – 33:38
Sean Mullaney: should we be doing a solo 401k, a set by array, taking that conversation and saying, well, wait a minute, what’s the contribution limit going to look like if I do a set buyer rate? What’s the contribution limit going to look like if I do a solo 401k? So I think it’s the tax planning piece of it and what are the contribution limits? And I would do that. You know, you don’t know the full, all the information during the year, but you know some of the information, right? Right now, we’re recording this in the second quarter of

33:38 – 34:07
Sean Mullaney: 2024. So you know already what happened in the first quarter. You’re seeing what your customer demand looks like in the second quarter. We don’t fully know what the third and fourth quarter looks like, but we at least have some window into, hey, the third quarter I might do this, fourth quarter I might do that. So taking the tax planning piece of this, and what are my limits in each potential account based on some estimates? But then the second thing, and now this is where it does need to be a licensed, somebody who has a license to

34:07 – 34:43
Sean Mullaney: provide investment advice, is the investments inside the Solo 401k. That’s important too. We don’t just put money into a Solo 401k, take a tax deduction and it sits in cash, right? We generally invest that money. And 1 of the things I would argue for soloists is soloists are very invested economically in their own business, their own situation. I look back, so I’m a career changer. Up to age 40, I worked W-2 jobs. I actually spent a little over 3 years at the Internal Revenue Service. I spent a bunch of time at big 4 accounting firms. Those

34:43 – 35:14
Sean Mullaney: big 4 accounting firms had dozens of little sub-businesses, right? So if the particular unit I was in had a bad quarter, it wasn’t like, oh, they’re just going to lay me off. It’s like, well, no, your unit didn’t do so well, but these other units… Essentially, I had at least some diversification being at a large employer. Well, once we’re on our own, we are very undiversified in terms of the economics of our income, right? We make money based on this 1 and only 1 industry. It might be geographically limited. It’s certainly going to be industry limited,

35:14 – 35:49
Sean Mullaney: right? You know, As a soloist, I’m in the financial planning industry. I’m not in all these other industries. I’m highly undiversified on my income. On my balance sheet, my assets, I probably ought to be well diversified. Isn’t that an argument for, hey, you know what? Sean is a financial planner, right? So he has a lot of economic exposure to the financial planning industry and his own capabilities in that industry. Well, Sean probably shouldn’t have his solo 401k all sitting in 1 and only 1 industry or 1 and only 1 geography, right? Somebody like me, I’m not

35:49 – 36:14
Sean Mullaney: giving investment advice on this podcast, but in an academic sense, doesn’t it make sense for somebody like me who has this 1 undiversified position to go out and get some diversified positions in something like a solo 401k and not have say my solo 401k only in the stock of 1 and only 1 company right well if that thing goes belly up and my you know financial planning takes a downturn now I got some problems on my hands

36:14 – 36:36
Rochelle Moulton: well yeah I mean I think you know if you’re a consultant to let’s say the tech industry you probably are not gonna want to put all of your assets in the tech industry in your 401k. But I like the idea of getting some advice on that because a lot of us just don’t know what to do. And we need someone to help us think through the options so that we can make the right choice for us.

36:36 – 37:10
Sean Mullaney: And I think that’s great, Rachelle. And 1 thing you could ask, like this goes back to our first conversation, is if you’re thinking about, hey, I wanna get some advice, you could ask your prospective financial planners that you’re interviewing, when does this relationship end? How does this end? In fact, in the model I offer, the advice only model I offer, I do it based on projects. So it’s generally, for most clients, it’s 90 days. So the engagement ends after 90 days. Now in other cases, maybe there’s a continuing relationship. Now how does the client end that

37:10 – 37:43
Sean Mullaney: continuing relationship and what’s the price of that continuing relationship? So now with an assets under management, you can get out of that, but I will say sometimes people struggle with that because there’s a bit of a psychological hole there. Everybody has a right to their money. You can move that. There’s a way to transfer money out of 1 financial institution into another. That can be ended, but there could be sort of like a psychological effect there where people get hesitant to move money that’s been at a certain place for a long time too.

37:43 – 37:57
Rochelle Moulton: Well, especially when there’s a personal relationship. I mean, it’s 1 thing if you’re saying, oh, I’m going to move it from fidelity to Vanguard or vice versa, big faceless corporations. But if it’s that advisor who’s been working with you, it’s a lot tougher.

37:58 – 38:17
Sean Mullaney: It can be. Yeah. And so I think that is something to consider asking a potential advisor is, you know, okay, we work together, what does that look like? And then how does this end either just based on the way you offer services and or my own desires? How would I end this? And also just understanding what the go-forward fees might look like.

38:17 – 38:32
Rochelle Moulton: Yeah. So there is a question that I love to ask every guest on this show. I have to ask you, Sean, so if you could go back to who you were when you started your business, your solo business, what’s the 1 thing you’d advise him to do?

38:32 – 39:07
Sean Mullaney: Oh, that is such a great question, Rochelle. I would say give myself some grace, right? I think when we’re soloists, we expect to be successful sort of overnight and we expect not to have the ebbs and flows, right? Because I came from a W2 world and maybe you get a bonus 1 year and then 1 year the bonus is a little higher, 1 year the bonus is lower, you don’t get a bonus. Well, okay, fine. It matters, but it doesn’t matter that much in the big picture. When we’re soloists, the income flows and the ebbs and

39:07 – 39:35
Sean Mullaney: the flows can be a lot more volatile. I think sometimes I haven’t given myself mental grace around the good times and the bad times, Understanding that when I say bad times, financial planning tends to be seasonal, tends to get a lot more interest in the first part of the year. That’s a general rule of thumb, by the way. Don’t go to the bank on that. That’s just been my experience. So you do want to just give yourself some grace. Understand, just freak occurrences, there’s going to be sometimes where you have a lot less interest, and sometimes

39:35 – 39:42
Sean Mullaney: where you have a lot more interest, maybe more interest than you can handle. So just giving yourself some grace around some of the ups and downs in the business.

39:42 – 39:53
Rochelle Moulton: I think that’s good advice. I like it. So Sean, we’ll be putting all sorts of links to you and your content in the show notes, but where’s the best place for people to learn more about you?

39:54 – 40:18
Sean Mullaney: Yeah, I’ll give you 3 places you could learn more about me. 1 is my blog, fytaxguy.com. You mentioned at the beginning of the show, it deals with the intersection of financial independence and tax. That’s www.fidetaxguide.com. You can find me on YouTube, Sean Mulaney videos. If you just put Sean Mulaney videos in the search bar, it’ll pop up. And then my financial planning firm is at mulaniefinancial.com. Awesome.

40:19 – 40:36
Rochelle Moulton: So, Sean, I just want to thank you. You’ve been so generous with your expertise. And I love that you’re a fellow soloist. So I know that you can kind of wrap your arms around how soloists deal with business and life. So I just want to say thank you. I really appreciate you.

40:37 – 40:41
Sean Mullaney: Rochelle, I really appreciate being on here today. Very much enjoyed this conversation.

40:41 – 40:47
Rochelle Moulton: Okay, well, that’s it for this episode. I hope you’ll join us next time for the soloist life. Bye bye.

40:47 – 41:01
Speaker 3: This discussion is intended to be for general educational purposes and is not tax, legal, or investment advice for any individual. Rochelle and the Soloist Life podcast do not endorse Shaw Malaney, Malaney Financial and Tax Inc., and their services.