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risk averse, easily accessible SEP-IRA

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  • risk averse, easily accessible SEP-IRA

    I'm a PA and pay a little bit of attention to finance. Paid off 200K of student debt in 8 years, purchased a cash flowing rental property, always maxed out my employer tax-advantaged accounts.... blah blah blah. My partner of 10 years and I have always kept our finances completely separate but he is allowing me to do a little meddling now. He is a 36 year old emergency room physician who followed the WCI advice and transitioned from an employee to a self-employed S corp last year. While he has 300K in cash reserves, he has ZERO retirement accounts! Never opted into 403bs/Roth 401k when they were available. I am completely salivating over the concept of him contributing a possible $56,000 into a SEP IRA THIS WEEK before filing his 2019 taxes. After some nagging, he has agreed to open a SEP - IRA but I have a hard time asking this risk averse, keep-money-under-the-mattress sort of guy to put a large sum of money into an IRA right now when I personally have 60K in cash on the sidelines to deploy then the S&P hits 2200, 2000, 1800. I know that time in the market is better than timing the market but...... is it possible to contribute to a SEP IRA and keep it in cash or an easily accessible money market account?

  • #2
    He can only open a SEP IRA up until the business filing deadline (3/15 for his S-Corp), including extensions, if they were filed. Yes, he can fund the SEP and just leave it in cash or a money market fund until he is ready to deploy it into the market.

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    • #3
      It's not a rush to decide for two reasons
      1- he could always file a tax extension
      2- this year the deadline is already extended due to COVID19 so it is July instead of April

      His new plan should accept a wire/transfer/check from the business account and put it in the new retirement account as cash. It's up to you/him to actually choose how to "spend" / invest that money once it has arrived. There are certainly a lot of low risk funds that could be selected if that is desired

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      • #4
        A SEP IRA or one-participant 401k at any of the low cost mainstream brokerages can invest in a core account (often with FDIC coverage) and any marketable securities they offer (MMFs, Bond Funds/ETFs, stock Funds/ETFs, individual bonds, individual stocks, etc...). Not that I think it is wise to remain on the sidelines.

        A SEP IRA is the only choice at this point for the 2019 tax year, but a one-participant 401k would be a better choice for 2020. His income is certainly too high to make a direct Roth IRA contribution and would need to use a Backdoor Roth. A SEP IRA balance would interfere with the Backdoor Roth. Also, if he adopts a one-participant 401k for 2020, he can rollover the 2019 SEP IRA contribution to eliminate the problem.

        See David_Puddy's and my following post if he didn't file an extension. Not to mention he is filing late.
        Last edited by spiritrider; 04-06-2020, 09:20 PM.

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        • #5
          Originally posted by goodvibes View Post
          It's not a rush to decide for two reasons
          1- he could always file a tax extension
          2- this year the deadline is already extended due to COVID19 so it is July instead of April
          1. The OP indicated that he created an S-Corp and as pointed out by David_Puddy, an S-Corp's tax filing deadline is 3/15. If he didn't file an extension by then it is too late to open a SEP IRA and make a contribution.
          2. The tax deadline was only "postponed" until 7/15 for taxpayers with a 4/15 tax filing deadline. An S-Corp's tax filing deadline was not postponed.
          Last edited by spiritrider; 04-07-2020, 04:44 PM.

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          • #6
            Thanks for all the advice everyone! I didn't realize the S corp filing date was in March and you're correct, the date was not extended due to COVID 19. I'll firm up whether or not an extension was filed. I'll look into the solo 401K with back door Roth conversion for 2020!

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