Author Topic: Getting started with Vanguard SEP-IRA  (Read 1451 times)

AlanStache

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Getting started with Vanguard SEP-IRA
« on: October 27, 2016, 07:08:16 PM »
I am visiting my cousin this weekend and have offered to help him get started with savings for retirement, he was very interested and has said he needs to get going on that.  He has no family in the area that could help him get going, his local family may not be bad with money but I dont think they have mutual funds.

His details near as I can tell:
>> Age 32
>> Self employed
>> Would guess he is making 70k, in a LCOL area,
>> His company is a few years old, doing well
>> He does not have a computer, he does everything on his smart phone, he may have a tablet I am not sure.
>> He might be able to use a computer every now and then at family's house but it might be best if his family did not see that he was investing. 
>> rents a house

Before I looked at it I was going to suggest he set up a IRA with Vanguard but I just learned about SEP's.  Is there much paper work with setting up a SEP?  I am fairly sure he has an accountant do his taxes. 

I will be taking my laptop this weekend so we can read up and get going setting things up but after that he will have to rely on his smartphone for web access. 

As for what to invest in I was going to suggest 100% the target date fund VFIFX, with automatic monthly contributions/investments.

I think he will do fine once things are set up but if things dont get set up it could sort of get pushed off to the side. 

Any and all thoughts are welcome!!

red7

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Re: Getting started with Vanguard SEP-IRA
« Reply #1 on: October 27, 2016, 07:23:37 PM »
It's SUPER easy to set up an SEP-IRA with Vanguard! I have one myself, that I set up for a very small side business. They even have a calculator on their website that will tell you exactly how much you can contribute based on your schedule C info.

That is the one downside I see with an SEP-IRA...your contribution amount is entirely based on your earnings/profit, so it's hard to estimate in advance (IMO). I always wait until I do my taxes and then make my contribution AFTER I've calculated everything. Just like with a regular IRA, you can contribute any time up to the April 15 filing deadline. I'm not sure how you would do automated contributions. Maybe his accountant would be able to tell you.

It's been a couple of years, but I'm pretty sure I was able to do the entire set up online, which was great. I did it on a laptop, though, so I have no idea how easy it would/would not be on a phone.

ETA: Once you have the set up done, the Vanguard app is very easy to use. If you can be there to help the set up, I think he would be able to handle it just fine from his smartphone.

He definitely needs to be using some kind of tax-deferred investment vehicle to lower his tax bill. It can make a HUGE difference. Personally, I think the SEP-IRA is the easiest to use for a single person business. Combine that with an automatic contribution to a traditional IRA (or Roth depending on income limits), and you are well on your way to significant savings.


terran

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Re: Getting started with Vanguard SEP-IRA
« Reply #2 on: October 27, 2016, 07:56:46 PM »
You/he might consider a solo 401k as it will allow a much higher contribution at that income level (maybe not an issue now, but if/when he ramps up savings it could be). My preference is for Fidelity over vanguard because the vanguard solo 401k charges $20/year/fund until you hit $50k and only allows investor class shares, so the fidelity equivalents end up being cheaper.

I believe both fidelity and vanguard solo 401k's rely a little more on the mail for sign up and contributions (or in person is an option with fidelity if he has an office nearby), so the lack of a computer shouldn't be a problem.

Djeayzonne

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Re: Getting started with Vanguard SEP-IRA
« Reply #3 on: October 27, 2016, 08:24:03 PM »
I just opened a solo 401 k with fidelity.
They have a dedicated department for this. They walked me through how to fill out the forms.
You can mail then in, but an office isn't too far, so I dropped off the paperwork. I will also have to go there to make contributions because I don't feel comfortable sending checks in the mail.

One of the guys in their specialized department said I can do contributions through bill pay at my bank, but then another said not a good idea, so I don't know.

I would go solo 401 k if there is any serious desire to save more than 15k or so.

AlanStache

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Re: Getting started with Vanguard SEP-IRA
« Reply #4 on: October 28, 2016, 07:19:51 AM »
Thanks for the input, I did not expect it to get even more complex :-)

I think I will talk with him to see what magnitude of contributions he is thinking of and how much upfront leg work he will do.  I would count it as a win if all he did was max out a transitional IRA for the next year/two and then set up a SEP/solo 401k.

There are a few Fidelity offices within an hour of him, so that might be good.