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New SEP IRA account & investments – newbie needs guidance

Home Retirement Accounts New SEP IRA account & investments – newbie needs guidance

  • Avatar tintin 
    Participant
    Status: Spouse
    Posts: 21
    Joined: 01/07/2019

    I want to open a SEP IRA and invest money for 2018 as I have 1099 based income for 2018.

    Is the process similar to opening an IRA with Fidelity, Schwab etc where you open an account and select your investments?

    Anything else I need to know before I open such an account?

    I am aware of the investment limits based on the income generated in 2018.

    BTW, I also get W-2 and participate in my employers’s 401K. My understanding is that having an active 401k does not preclude SEP IRA.

    Please let me know what I should be thinking about.

    #179523 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016

    Don’t open a SEP, open a solo-401k. Having a SEP will mean you’ll pay pro-rata taxes on your backdoor Roth conversions. You’re correct that active 401k participation at your current employer does not preclude a SEP/solo-k working on your own.

    Small Business Retirement Plans, Part 2: SEP IRAs

    Small Business Retirement Plans, Part 3: 401k’s

    Which is Better: SEP or Solo-k?

    The Pro-Rata Rule for Backdoor Roth IRAs

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179530 Reply
    Liked by snowcanyon
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1704
    Joined: 02/01/2016

    The OP wants to open the SEP IRA for 2018 contributions. That is their only option at this point. They can adopt a one-participant 401k for 2019.

    #179638 Reply
    Liked by tintin
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016
    Splash Refinancing Bonus

    The OP wants to open the SEP IRA for 2018 contributions. That is their only option at this point. They can adopt a one-participant 401k for 2019.

    Click to expand…

    Oh, my, you are so right?. Thanks, I totally missed that it was for 2018. tintin, detailed instructions for what you should do are in the 3rd link I posted, above.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #179644 Reply
    Avatar tintin 
    Participant
    Status: Spouse
    Posts: 21
    Joined: 01/07/2019

    jfoxcpacfp  I need to learn about solo-401k. I do not know anything about this option. Thanks for pointing it out.

    BTW, can SEP IRA be rolled into solo-401k in future if needed, assuming that solo-401k works similar to a normal 401k?

     

    #179879 Reply
    Avatar jacoavlu 
    Moderator
    Status: Physician, Small Business Owner
    Posts: 1843
    Joined: 03/01/2018

    can SEP IRA be rolled into solo-401k in future

    Click to expand…

    yes and that’s exactly what you should do

    open SEP IRA now for 2018 contributions

    then open solo 401k, rollover SEP IRA to solo 401k

    make 2019 and future contributions to solo 401k

    Note: do no open solo 401k at Vanguard as their plan doesn’t accept rollovers

    The Finance Buff's solo 401k contribution spreadsheet: https://goo.gl/6cZKVA

    #179883 Reply
    Liked by tintin
    Avatar tintin 
    Participant
    Status: Spouse
    Posts: 21
    Joined: 01/07/2019

    jfoxcpacfp are there any limits to combined contributions to my contributions to 401K, employer match to this 401K and my contributions to SEP IRA ( I understand the standalone SEP IRA contribution limits)? I have maxed by 401K in 2018, will get about 10k match and am planning to put 30-35K in SEP IRA for 2018.

    I recently read about a limit of $56,000 under section 415(c) and not sure if this applies to my situation/question above especially if I increase my SEP contributions to 40K in 2019

    #179993 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 7315
    Joined: 01/09/2016

    jfoxcpacfp are there any limits to combined contributions to my contributions to 401K, employer match to this 401K and my contributions to SEP IRA ( I understand the standalone SEP IRA contribution limits)? I have maxed by 401K in 2018, will get about 10k match and am planning to put 30-35K in SEP IRA for 2018.

    I recently read about a limit of $56,000 under section 415(c) and not sure if this applies to my situation/question above especially if I increase my SEP contributions to 40K in 2019

    Click to expand…

    Not in your case. You can work for as many unrelated employers as you can handle and get separate profit sharing employer contributions of up to $56k (2019) from each of them. They are all calculated independently. What you need to know is that you are limited to an employee contribution of $19k total (2019) among all plans on an annual basis.

    Note that:

    • If you were to start a separate second side gig, you could not set up a separate SEP/solo-k because you are a “related employer” for purposes of side gig #1 and your employer contribution limit would be aggregated among all IC work.
    • If your day job had a 403b instead of a 401k, your combined limit for both SEP/solo-k and the 403b would be the annual limit ($56k in 2019). @spiritrider has waxed eloquent on this topic many times on this forum but, since it’s not applicable here, I won’t go further (i.e. copy and paste his answers).
    • Therefore, in this situation, you can receive employer contributions of up to $56k in your side gig. Because the employer contributes fully to the SEP and to the profit sharing portion of the solo-k, either works. Of course, you are still limited to the SEP for 2018, but this applies to your solo-k in 2019 forward.

    Johanna Fox Turner, CPA, CFP, Fox Wealth Mgmt & Fox CPAs ~ 270-247-0555
    https://fox-cpas.com/for-doctors-only/

    #180121 Reply
    Liked by tintin

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