Tax/Finance/401k question

[Trouble]

Ok so I've been self-employed so far this year but will be converting to salaried as of July 1. I was planning on opening up a SEP-IRA and putting 20% of my earnings in it for the Jan-June time frame. Once I convert to salary I will be opening up a 401k with that company. My question is can I contribute the full $15k (or whatever it is this year) to that 401k if I am already contributing to a SEP-IRA? Any idea?

[Oniros]

Yes. You can contribute a total of $46,000 to retirement plans for 2008. The 401(k) limit is 15,500. So as long as your 15,500 would not put you over the $46,000 in combination with your SEP contribution then you are ok.

[Parkbandit]

Yes. You can contribute a total of $46,000 to retirement plans for 2008. The 401(k) limit is 15,500. So as long as your 15,500 would not put you over the $46,000 in combination with your SEP contribution then you are ok.


My understanding was that the max contribution to a SEP was based on your total income.. not a set dollar amount.

[Parkbandit]

Ah, here it is:

For 2008, if you are unincorporated, you can contribute the lesser of 20% of net earnings from self-employment or $46,000.


So, if Dimar earned more than $230,000 from January 1st through July 31st, he can indeed put up to $46,000.00 into his SEP.

[Daniel]

Wait,

Why would you be getting a SEP if you are going over to a salaried position?

The max amount you can contribute to a roth or traditional IRA is 5,000 depending on income restrictions. (If you make around 90k+ start worrying)

The max amount for a SEP-IRA is about 18.6% of net "Profit" which rounds out to be about 20 depending upon FICA and rate reductions.

If you work for someone who is sel femployed then the rules are different and you can contribute up to about 20% of your pay up to 46k which is what the other person quoted.

In either of these cases, you should be using an accountant to help you figure it all out.

[Trouble]

Why would you be getting a SEP if you are going over to a salaried position?

Well I'm getting the SEP because I wanted to maximize my retirement contributions. With $15.5k in the 401k, 20% of my self-employed income into the SEP, and then $5k into the Roth IRA.

[Clove]

Stop it Trouble, you're making me horny.

[Parkbandit]

Well I'm getting the SEP because I wanted to maximize my retirement contributions. With $15.5k in the 401k, 20% of my self-employed income into the SEP, and then $5k into the Roth IRA.

I think you are doing the right thing if your goal is to maximize your retirement contributions... but you may want to check with an accountant regarding the maximum amount of money you can set aside in one year total.

Also, if you want to MAXIMIZE things, don't forget a good life insurance policy can also help you set aside some money for later on.

[Daniel]

I'm pretty sure you won't be able to contribute to the SEP unless you still qualify as self employed.

Are you still keeping your busy and then keeping a salary on the side? If so, I'd reccomend talking to a lawyer about incorporating yourself and counting the salary as money you make. However, I honestly don't know if that still counts and would be weary of contributing any money made through something that is not self employment without talking to a lawyer first.

[Clove]

I think you are doing the right thing if your goal is to maximize your retirement contributions...Nobody (except the E) will ever get to retirement and say, "Fuck, what am I going to do with all this money I saved? I should have spent this while I was working!"

[Daniel]

? I don't even think theE would say that.

[Oniros]

Being that I AM a CPA and giving you free tax advice.

Contribute the maximum you can to your SEP from the earnings that will be reported for that time period. The SEP calculation is complicated so you will need to basically complete you schedule C in order to determine what the actual maximum contribution will be. Go see a professional. Most stock brokers will just turn around and refer you to a CPA to tell you how much you can contribute to your SEP

Put as much as you can into your 401(k). The limit is 15,500 for 2008.

As far as an IRA goes you are considered to be an ACTIVE participant in retirement plan based upon the SEP and the 401(k). So your contributions will be limited if you make over 52,000 for the year. You basically can't contribute to it.

Stick to the SEP and the 401(k). The maximum that you can contribute to ALL of the retirement plans combined cannot exceed 46,000 for the year.

If you are really serious about this you need to seek the help of a tax professional in your area. Always go with a CPA and not some enrolled agent or box store hack.

Do it sooner than later because if you try and do this after the fact you will miss something and get yourself in trouble.

[Oniros]

You need to speak to an attorney who specializes in business or taxaxtion or a CPA before you EVER incorporate. You can get yourself into real tax trouble if you just go and start incorporating for no good reason. An employee or a self-employed person is NOT better off being a corporation MOST of the time.

The best advice I can give anyone who owns a business or makes a substantial amount of money is to get a trusted and competent CPA to run your financial decisions by BEFORE you make them.

[Trouble]

Cool thanks for the input. I'll look for a local CPA, to be on the safe side.