Author Topic: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA  (Read 672 times)

Bro-mero

  • 5 O'Clock Shadow
  • *
  • Posts: 21
  • Location: Minnesota
SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« on: May 20, 2018, 05:10:57 PM »
Hello,

Hoping to get some advice on which of these will allow the maximum amount of tax-deferred investing

My side gig (LLC) will be generating $20,000 for the year. I will already be maxing out my 401k, HSA, and Traditional IRA with income from my future W2 job. Which of these 3 investments (SIMPLE, Solo 401k, and SEP) will allow me to shelter the most money since I will already be maxing out my other tax-deferred contributions?

Additional Note: I would hope to execute a Roth Conversion Ladder with this as well, so hopefully that can be done with at least one of the three tax-deferred investments.

Thanks!

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1308
  • Age: 59
  • Location: Redmond, WA
    • Evergreen Small Business
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #1 on: May 21, 2018, 06:50:21 AM »
You won't be able to contribute additional amounts as an employee, as "elective deferral."

That means that really you're comparing the employer contributions of the three choices:

3% for the Simple (so roughly $600 if you make $20K)

20% for the 401(k)

20% for the SEP

Because the SEP provides more flexibility, makes for easier paperwork, that's what you want to use.

Bro-mero

  • 5 O'Clock Shadow
  • *
  • Posts: 21
  • Location: Minnesota
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #2 on: May 21, 2018, 02:03:28 PM »
You won't be able to contribute additional amounts as an employee, as "elective deferral."

That means that really you're comparing the employer contributions of the three choices:

3% for the Simple (so roughly $600 if you make $20K)

20% for the 401(k)

20% for the SEP

Because the SEP provides more flexibility, makes for easier paperwork, that's what you want to use.

So since I will already be maxing out a traditional IRA, I cannot contribute up to $12,500 as an "employee" into a SIMPLE IRA?

SeattleCPA

  • Handlebar Stache
  • *****
  • Posts: 1308
  • Age: 59
  • Location: Redmond, WA
    • Evergreen Small Business
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #3 on: May 21, 2018, 05:16:34 PM »
Because you are maxing 401(k), you won't have any space left for $12.500 part of the Simple-IRA.

I.e., the total you put into all your 401(k) accounts and Simple-IRA accounts as an "employee" can't exceed $18,500.

Bro-mero

  • 5 O'Clock Shadow
  • *
  • Posts: 21
  • Location: Minnesota
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #4 on: May 21, 2018, 08:17:50 PM »
Because you are maxing 401(k), you won't have any space left for $12.500 part of the Simple-IRA.

I.e., the total you put into all your 401(k) accounts and Simple-IRA accounts as an "employee" can't exceed $18,500.

Understood! Looks like a SEP IRA will likely be my best bet then.

Thank you so much!

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1917
  • Age: 53
  • Location: Ann Arbor, Michigan
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #5 on: May 24, 2018, 07:14:47 PM »
The Solo 401k can be a possible solution if you do some research and discover that you want to do the mega backdoor roth.

lavagirl

  • 5 O'Clock Shadow
  • *
  • Posts: 76
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #6 on: May 24, 2018, 07:18:26 PM »
Excuse me for jumping into this but do you mean you can max out your employers traditional 401k and then contribute 20% of your earnings from your side job into a sep ira?

DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 1917
  • Age: 53
  • Location: Ann Arbor, Michigan
Re: SIMPLE IRA vs. Solo 401(k) vs. SEP IRA
« Reply #7 on: May 24, 2018, 07:45:39 PM »
Yes that's correct