Author Topic: Putting money in SEP vs Increasing 403B Contributions  (Read 321 times)

MasterStache

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Putting money in SEP vs Increasing 403B Contributions
« on: September 11, 2018, 10:22:16 AM »
I searched and couldn't find where anyone posed this question so I apologize if this has been answered.

Currently I am retired but will earn roughly 15K or so of taxable income from various side gigs. My wife still works full time and contributes to a 403b, but not the maximum. I am wondering if it would be more advantageous to have her up her 403b contributions or for me to throw 20% in a SEP IRA? Basically taking the 3K (20% of 15K) I would throw in a SEP and instead have her up her 403b contributions by another 3K. Looking to minimize our tax liability of course.

Forgive me as I am pretty ignorant when it comes to this tax stuff. Maybe it's simply a moot point, I don't know. It's why I am asking. 

seattlecyclone

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #1 on: September 11, 2018, 10:53:20 AM »
I don't think it makes a difference on federal taxes. Either option is deductible against your income prior to AGI, but makes no difference to your wife's payroll tax or your self-employment tax. The SEP has the advantage that it can be converted and used as part of a Roth pipeline and withdrawn before your wife leaves her job. If that consideration doesn't make much difference to you, I'd probably lean toward whichever option has the lowest expense ratios.

terran

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #2 on: September 11, 2018, 12:02:32 PM »
You could also consider a solo 401(k). That would allow you to put in more of the self employed income than the SEP.

MDM

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #3 on: September 11, 2018, 12:05:10 PM »
If your joint AGI can be <$63K, it is to your advantage to have both of you contribute at least $2K to retirement accounts.  This will maximize your saver's credit.

See Form 8880 for details.

dandarc

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #4 on: September 11, 2018, 12:08:39 PM »
Correct answer is both - max the 403B and max an individual 401K (you can defer more at that level of self-employment income than with a SEP).

Unless your budget doesn't allow, then the tax treatment, assuming you file jointly, should be the same.

MasterStache

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #5 on: September 11, 2018, 12:56:03 PM »
Thanks for all the advice. It seems the general consensus is it might not matter. I think our joint AGI will be over 63K because of my side income. Will probably just throw some cash in a SEP.

SeattleCPA

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Re: Putting money in SEP vs Increasing 403B Contributions
« Reply #6 on: September 12, 2018, 02:11:24 PM »
Thanks for all the advice. It seems the general consensus is it might not matter. I think our joint AGI will be over 63K because of my side income. Will probably just throw some cash in a SEP.

It probably doesn't matter in this situation, but with the new Section 199A deduction, you want to be careful you don't unnecessarily decrease your business income.

I am guessing a SEP-IRA contribution doesn't reduce the qualified business income of the sole proprietorship. But an employee elective deferral FOR SURE doesn't reduce the qualified business income. (More gritty detail here: https://evergreensmallbusiness.com/retirement-saving-qualified-business-income-deduction/ )