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Should I open a SEP IRA?

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  • Should I open a SEP IRA?

    Hey everyone so I graduated residency last year and afterwards I did some independent contractor work from Aug to Nov and made about 52k total. I rolled over my 403b from residency into my Roth IRA towards the end of 2019. I did a backdoor Roth IRA this year. I'm thinking of other avenues for me to save and I realized that it is too late for me to open up a solo 401k and a simple IRA for the 1099 work that I did last year. The only thing I can open up is a SEP IRA and I'm wondering if it's worth the trouble to open this up with the potential complications it can cause via the pro rata rule. I have a W2 job that I'm starting up next month with a 401k plan that I can contribute to. Just wanted to get some input from the WCI community. Thanks everyone.

  • #2
    Sorry meant for this to be posted in the retirement accounts forum. Was wondering if the mods can delete this thanks.

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    • Peds
      Peds commented
      Editing a comment
      Or just move it....

  • #3
    I would open the sep now and make a 2019 contribution - calculate carefully and make sure to aggregate with any 403b contributions - and concurrently I would open a solo 401k into which I would rollover the sep ira 2019 contribution. Open both at the same institution. E*TRADE preferred. Now you have a solo 401k in perpetuity. Do not make 2020 or future contributions to the sep ira.

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    • #4
      Originally posted by jacoavlu View Post
      I would open the sep now and make a 2019 contribution - calculate carefully and make sure to aggregate with any 403b contributions - and concurrently I would open a solo 401k into which I would rollover the sep ira 2019 contribution. Open both at the same institution. E*TRADE preferred. Now you have a solo 401k in perpetuity. Do not make 2020 or future contributions to the sep ira.
      Any reason why you prefer E*Trade as opposed to Fidelity or any other financial institution? I know Vanguard doesn't allow any rollovers into a solo 401k from what I've read.

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      • #5
        Most features including in plan Roth rollover

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        • #6
          Open & fund 2019 SEP IRA, then either convert to Roth or roll into 2020 Solo401k which you will open this year. I opened mine with Fidelity in December; Etrade also an option.

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          • #7
            Originally posted by DMC View Post
            Open & fund 2019 SEP IRA, then either convert to Roth or roll into 2020 Solo401k which you will open this year. I opened mine with Fidelity in December; Etrade also an option.
            Can I open a 2020 solo 401k for the purposes of just rolling over the SEP IRA even though I'll be working as a W2? Unfortunately my W2 job will not allow me to participate in any moonlighting/side gigs.

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            • #8
              The tax code considers a taxpayer with self-employed earned income in the current or any prior year a self-employed individual eligible to adopt, contribute to and maintain a 401k plan. A rollover from a SEP IRA to a 401k is a rollover contribution.

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              • kaymaza
                kaymaza commented
                Editing a comment
                Okay sweet. I actually just found out that my future employer offers a 401k plan through Fidelity so I think I'm just going to contribute to the SEP IRA and roll that over to the 401k that I will have with my employer.

            • #9
              I decided to open up a Fidelity SEP IRA acct so I can make 2019 contributions to it. As of this year I'm now living in CA and my Fidelity acct has my CA address on file. Last year I worked as an independent contractor in the state of WA however my tax home base was in NV. If I make 2019 contributions to my SEP IRA acct, will I have to owe any CA state taxes? Thanks.

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              • #10
                While WA does not have a state income tax. The general principle of state tax law is that income even of non-residents derived in a state is taxable to that state and income of tax residents is taxable no matter where derived.. Your NV tax base would not likely be relevant unless you were telecommuting for an IC position*.

                However, you benefit from another general principle of state tax law, even in CA. You will not be taxed on income earned prior to moving to the state. Now, I'm not sure if that is based on accrual or cash basis upon constructive receipt. Someone with specific detailed knowledge of CA tax law will have to comment on that.

                *A handful of states have a "convenience of the employer" rule that can even tax telecommuters from other states.

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                • #11
                  Originally posted by jacoavlu View Post
                  I would open the sep now and make a 2019 contribution - calculate carefully and make sure to aggregate with any 403b contributions - and concurrently I would open a solo 401k into which I would rollover the sep ira 2019 contribution. Open both at the same institution. E*TRADE preferred. Now you have a solo 401k in perpetuity. Do not make 2020 or future contributions to the sep ira.
                  Does the SEP-IRA need to stay in the account for any duration of time. Or can they be rolled into a solo 401k once the funds clear ?

                  im asking because I have yet to convert backdoor Roth for 2019 and 2020 yet and want to keep all IRA zero’ed. ( I know I know this is my first year next year will be done sooner). Thanks.

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