Employer funded SEP, what next?

[Isriam]

Laying out future savings/investment strategy.

Wife has a employer funded SEP with 25% income put into it.  She has 6 months emergency savings in liquid cash, what should be the next investment/savings strategy?  IRA/Roth IRA could easily be maxed at 5,500 a year for her, but should we just go with a taxable Vanguard account?

She will have about 25k a year for saving/investing after bills/expenses.

[seattlecyclone]

Do you have a high-deductible health plan? Can you switch to one? If so, an HSA is a nice way to save. After that, IRAs make a lot of sense. Remember that both members of a married couple can max out an IRA even if only one of them earns money, so long as the working spouse's earnings are at least $11k. Once you have maxed out all of your tax shelters, then a taxable Vanguard account is the thing to do.

[Isriam]

Today our finances are separate even though we file married.  After my debt is paid off I will be funding a vanguard 401k with 15% of my income.    I pay all bills and have a flex account for Health/Childcare.  My biggest concern is I think we are going to max all tax advantaged accounts since she has a SEP that is not part of her salary.  So, after the 11k for IRA's, there isn't much left?

Edit: Could we do 11k for roth IRA and 11k for traditional IRA? (5500 per person)

[seattlecyclone]

Why are you "concerned" about maxing all of your tax-advantaged accounts?

Each of you can contribute up to $5,500 to IRAs. This is a combined limit between the two types; you could contribute $5,500 to a traditional IRA, or contribute $5,500 to a Roth IRA, or contribute $2,250 to each, or some other combination so long as the total adds up to no more than $5,500.

[Isriam]

Ah, I didn't know they were combined.  That limits me even more.  I know that we have more income than we can shelter, unless there is something I'm missing.  Thats what I'm trying to verify.

[seattlecyclone]

If you have enough extra income to max out your tax shelters, do two things:
1) Celebrate!
2) Put the surplus in a taxable Vanguard account.

[DavidAnnArbor]

There are income limits as to whether and how much you can put in a traditional IRA or a Roth IRA. Just make sure you know that in order to determine whether and how much to put in to these tax deferred/tax-free instruments.

[MDM]

There are income limits as to whether and how much you can put in a traditional IRA or a Roth IRA. Just make sure you know that in order to determine whether and how much to put in to these tax deferred/tax-free instruments.

Excellent point.

Note the limits for "married filing separately" are ridiculously low: http://www.irs.gov/Retirement-Plans/2015-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work

You may want to investigate whether MFJ might actually be better (if by "our finances are separate even though we file married" you mean you file MFS).

[Isriam]

sorry i meant married filing jointly.  we do not file separate any longer.

also, if you put your money into say a roth IRA but you end up making too much, do you get some kind of penalty?  Or you just have to remove it and place it in a different account and lose the tax shelter?  I can't say whether or not I will break the income limit until the end of the year.

[ac]

After screwing this up a couple times in the past, I now wait to put money into a traditional or roth ira until tax time. 

So March 2015 is when I put my 2014 ira contributions in.  Turbotax told me what I could do, and so I did that.  You miss some growth from the previous year but save some tax stress. 

Also, check into HSA's (health savings accounts).  They are much better than flexible savings accounts that you mention. 

For kids, consider 529's and custodial accounts.

SC has a catastrophe savings account.  If your state does, that's another tax shelter although not a great one. 

[Isriam]

thank you for those great ideas!

my flex account is weird, because i have a HRA, so i cannot get an HSA.  So I have a company funded reimbursment account, and then i can tack on a flex spending account with it.  If i change to a high deductible account, i can do an HSA onto that.

[frugalnacho]

After screwing this up a couple times in the past, I now wait to put money into a traditional or roth ira until tax time. 

So March 2015 is when I put my 2014 ira contributions in.  Turbotax told me what I could do, and so I did that.  You miss some growth from the previous year but save some tax stress. 

You can recharacterize IRA contributions.  So you can put $5,500 into a traditional IRA on January 1, then when you do your taxes a year later you can recharacterize a portion, or all that $5,500 into a roth ira if it's beneficial from a tax stand point.  No need to wait and stay out of the market for an entire year to see how your tax situation will turn out.  Just contributed, and recharacterize later if needed.

[seattlecyclone]

After screwing this up a couple times in the past, I now wait to put money into a traditional or roth ira until tax time. 

So March 2015 is when I put my 2014 ira contributions in.  Turbotax told me what I could do, and so I did that.  You miss some growth from the previous year but save some tax stress. 

You can recharacterize IRA contributions.  So you can put $5,500 into a traditional IRA on January 1, then when you do your taxes a year later you can recharacterize a portion, or all that $5,500 into a roth ira if it's beneficial from a tax stand point.  No need to wait and stay out of the market for an entire year to see how your tax situation will turn out.  Just contributed, and recharacterize later if needed.

While this is true, the tax forms to report a recharacterization are a minor headache. While you may be willing to deal with that in exchange for an extra year of tax-free growth on that money, I fully understand if someone else might not be.

[frugalnacho]

After screwing this up a couple times in the past, I now wait to put money into a traditional or roth ira until tax time. 

So March 2015 is when I put my 2014 ira contributions in.  Turbotax told me what I could do, and so I did that.  You miss some growth from the previous year but save some tax stress. 

You can recharacterize IRA contributions.  So you can put $5,500 into a traditional IRA on January 1, then when you do your taxes a year later you can recharacterize a portion, or all that $5,500 into a roth ira if it's beneficial from a tax stand point.  No need to wait and stay out of the market for an entire year to see how your tax situation will turn out.  Just contributed, and recharacterize later if needed.

While this is true, the tax forms to report a recharacterization are a minor headache. While you may be willing to deal with that in exchange for an extra year of tax-free growth on that money, I fully understand if someone else might not be.

Seems like a non issue as he said he is using turbo tax.  Turbo tax will ask you about contributions, and ask if any are recharacterizations, and fill out all the appropriate forms for you. Shouldn't cause any headaches or excess work.

[Isriam]

These replies were awesome and I found out that I am eligible for a HSA.  I didn't know what an HSA was so after researching it, that will be our next retirement savings account.  Thanks!