Author Topic: Self-employment - Contributing to IRA?  (Read 570 times)

mustachedali

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Self-employment - Contributing to IRA?
« on: December 16, 2017, 12:42:02 AM »
Hello, newbie here. I live abroad but I'm American and I am registering my own LLC.


  • What is the best structure for a tax-free retirement savings plan?
  • Is there a way to contribute my taxable self-employment income to go to my retirement savings?


Thanks!

jpdx

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Re: Self-employment - Contributing to IRA?
« Reply #1 on: December 17, 2017, 09:27:53 PM »
Yes! There are a few options, such as a SEP IRA or Individual 401k. Start by googling those and you'll learn the differences.

I use a SEP IRA, just for the relative simplicity. A self-employed person can contribute 20% of their business profit. I think it's 25% if you're an employee-owner. And you can still do your regular IRA contribution of $5500 on top of that.
« Last Edit: December 18, 2017, 01:16:50 PM by jpdx »

angelleye

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Re: Self-employment - Contributing to IRA?
« Reply #2 on: December 22, 2017, 02:29:26 PM »
I would recommend a Solo 401k.  You can set up both Roth and Traditional, and you can contribute up to $18k as an employee as well as 25% of the salary you're paying yourself as Employer match (up to a max combined contribution $54k).  You can still IRA separate from that, too.

mustachedali

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Re: Self-employment - Contributing to IRA?
« Reply #3 on: January 04, 2018, 10:41:27 AM »
I would recommend a Solo 401k.  You can set up both Roth and Traditional, and you can contribute up to $18k as an employee as well as 25% of the salary you're paying yourself as Employer match (up to a max combined contribution $54k).  You can still IRA separate from that, too.

Would a Solo 401k work well for an LLC?

rockwater

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Re: Self-employment - Contributing to IRA?
« Reply #4 on: January 07, 2018, 06:56:47 PM »
I'm wondering about this as well.

Had started a Roth prior to being self-employed, but curious what my best options are for efficient contributing.

Keep contributing to roth? Convert to SEP? Start a new IRA/401k?

bacchi

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Re: Self-employment - Contributing to IRA?
« Reply #5 on: January 07, 2018, 07:27:30 PM »
I would recommend a Solo 401k.  You can set up both Roth and Traditional, and you can contribute up to $18k as an employee as well as 25% of the salary you're paying yourself as Employer match (up to a max combined contribution $54k).  You can still IRA separate from that, too.

Would a Solo 401k work well for an LLC?

Yes. Most brokers will require an EIN even if it's a pass-through.

mustachedali

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Re: Self-employment - Contributing to IRA?
« Reply #6 on: January 08, 2018, 11:59:02 PM »
I'm wondering about this as well.

Had started a Roth prior to being self-employed, but curious what my best options are for efficient contributing.

Keep contributing to roth? Convert to SEP? Start a new IRA/401k?

Yes I hear you! I've been seeing some options for a roth solo 401k which changes the mix. A lot of info to sift through and research for providers.

Fi365

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Re: Self-employment - Contributing to IRA?
« Reply #7 on: January 10, 2018, 01:27:49 PM »
I'm fairly new to these topics myself, but here's what I've learned so far...

I turned my side hustle into a full-time LLC three years ago. I have a separate EIN for my LLC (it's basically a social security number to identify your business).

Zero plans for employees. In fact, that's my worst nightmare. I subcontract small things (a few thousand dollars here and there) but will never employ anyone other than myself. Whether you have employees or not is a consideration in what type of retirement plan you choose.

Last year, being frustrated that I couldn't contribute more to retirement and not knowing what to do with my extra money, I finally realized that SEP IRAs and solo 401s exist. Oops! Most of my freelancer friends are totally broke... let alone saving for retirement... so it simply wasn't on my rader.

I opened a SEP IRA because my accountant and business coach recommended it to me. They said I could contribute up to $50,000 (or whatever the limit is--it changes each year) and that should be plenty. Well, neither the accountant or the business coach are aware of the FIRE community. They're on the "retire at 62 cuz that's early, right?!" track.

Based on my 2017 net business income of ~$193,000, I think I'm able to contribute ~$36,000 to my SEP IRA. I've put in $10,000 so far and plan to put in more for the 2017 year this April when H&R Block finishes my taxes and I figure out the exact max.

$36,000 in a SEP IRA is great, but I think the individual 401k will be even better. I'm probably going to open one this year in 2018 and start contributing to it next year in 2019. My understanding is that I can contribute the $18,500 as an employee AND 20% or 25% or whatever as the employer. It should allow me to contribute around $50,000 total.

I'm not sure how to access either of these options prior to 59.5. There are probably tons of posts on this topic already. One of my 2018 to-do list items is to research this topic more.

Good luck on your learning journey! Hopefully my story helps you understand what others are considering.

The steps we're taking 365 days a year to reach financial independence by… 45? 40? https://fi365.wordpress.com/

neo von retorch

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Re: Self-employment - Contributing to IRA?
« Reply #8 on: January 10, 2018, 01:47:18 PM »
Last year I started a single-member LLC, as my full-time work transitioned (for now) into the realm of 1099 pay.

You can contribute up to the employee maximum ($18,500 for 2018), and you can contribute up to 20% of net profits as your own employer (up to a combined total of ~$54,000).

Since I haven't been doing it for very long, I still have some things to figure out - mostly I'll calculate my maximums when I calculate my taxes this spring, and then make sure I'm maxing out where I can!

The best part, in my opinion, is that you can open a Solo 401(k) with Vanguard, and choose really great funds!