Author Topic: Difference between SEP-IRA and Roth or trad. IRA?  (Read 1705 times)

FIence!

  • Stubble
  • **
  • Posts: 124
Difference between SEP-IRA and Roth or trad. IRA?
« on: July 30, 2013, 01:36:36 PM »
Hello,

I have been looking at setting up an IRA using the Vanguard target retirement funds. I am self-employed, sole proprietor with all my income from 1099s. As I looked around, I noticed SEP-IRA and Solo 401k options. From what I can figure out, the main difference would be that my contributions to a standard IRA (say, the Vanguard Roth one) are capped at 5,500- while it appears I could contribute more to the other two options. Is that correct? Right now, I will not be able to contribute more that 5,500- anyway, so is there any other advantage I am missing? If I am only going to put 3 or 4k into whatever account I set up (and likely won't want to contribute more than 5k in any future years either), is a regular target fund IRA my easiest option?

Thanks!

emabrook

  • 5 O'Clock Shadow
  • *
  • Posts: 9
Re: Difference between SEP-IRA and Roth or trad. IRA?
« Reply #1 on: July 31, 2013, 11:41:44 AM »
I am curious about the same thing since I am self employed also// 1099s.
I am a newbie...Just recently learned the true difference between Traditional and Roth IRAs.

matchewed

  • Magnum Stache
  • ******
  • Posts: 4386
  • Location: CT
Re: Difference between SEP-IRA and Roth or trad. IRA?
« Reply #2 on: July 31, 2013, 12:01:55 PM »
It is correct that your IRA contribution limits are 5.5k (see http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits for more details).

As for what is optimal in your situation it is really up to you. It will depend on your income, goals, and current tax bracket. Roth IRAs are good because they're a bit more liquid since you can access your contributions at any time. 401ks are good because they reduce your taxable income. However you can get the same benefit from a regular IRA but you lose the liquidity of the Roth IRA and have a lower contribution limit.