The Money Mustache Community
Learning, Sharing, and Teaching => Taxes => Topic started by: MasterStache 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.
-
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 The SEP has the advantage that it can be converted and used as part of a Roth pipeline and withdrawn before your wife leaves her job.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.
-
You could also consider a solo 401(k). That would allow you to put in more of the self employed income than the SEP.
-
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 (https://www.irs.gov/pub/irs-pdf/f8880.pdf) for details.
-
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.
-
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.
-
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/ )