Author Topic: Self Employed Retirement Options  (Read 2446 times)

Guizmo

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Self Employed Retirement Options
« on: January 19, 2015, 10:36:00 PM »
Hi folks,

I have some side gig income that I want to tax defer. I have a regular job with a school district  and some rental income as well so I currently contribute to a traditional IRA, the 457 plan and the job pension.

The details on the side gig money:

$3,300 in 2014 from some handyman services.

What do y'all recommend?

wtjbatman

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Re: Self Employed Retirement Options
« Reply #1 on: January 20, 2015, 07:13:53 AM »
I'll ask just because, but I assume you're maxing out the IRA and 457 already?

GGNoob

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Re: Self Employed Retirement Options
« Reply #2 on: January 20, 2015, 07:27:11 AM »
Does the school district offer a 401k or 403b? Seems like most offer a combination of 401k/403b and 457 and you can max out both of them, plus your IRA.

terran

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Re: Self Employed Retirement Options
« Reply #3 on: January 20, 2015, 07:41:38 AM »
As far as self employed retirement accounts, these are your best options as a single employee business as I understand them:

SEP IRA: Up to 25% of your net self employed income as an "employer" contribution (with you being your own employer).

Solo 401k: 20% of your net self employed income as an employer contribution, then up to $17.5k or the balance of your income after the employer contribution and 1/2 of self employment taxes are deducted (whichever is less).

The SEP would be your only option for your 2014 income as you can still contribute. The solo 401k has to be set up within the year you're contributing for. Vanguard tells me you can contribute in the jan-april 15 window once it's set up though (so next year).

You might find this calculator helpful: http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

Also, here's Vanguard's comparison: https://investor.vanguard.com/what-we-offer/small-business/compare-plans?Link=facet


hodedofome

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Re: Self Employed Retirement Options
« Reply #4 on: January 20, 2015, 07:46:01 AM »
As far as self employed retirement accounts, these are your best options as a single employee business as I understand them:

SEP IRA: Up to 25% of your net self employed income as an "employer" contribution (with you being your own employer).

Solo 401k: 20% of your net self employed income as an employer contribution, then up to $17.5k or the balance of your income after the employer contribution and 1/2 of self employment taxes are deducted (whichever is less).

The SEP would be your only option for your 2014 income as you can still contribute. The solo 401k has to be set up within the year you're contributing for. Vanguard tells me you can contribute in the jan-april 15 window once it's set up though (so next year).

You might find this calculator helpful: http://www.bankrate.com/calculators/retirement/self-employed-401-k-calculator.aspx

Also, here's Vanguard's comparison: https://investor.vanguard.com/what-we-offer/small-business/compare-plans?Link=facet

I can confirm that yes, once you set up the solo 401k with Vanguard, you can choose the year you want to contribute. Kinda nice so you aren't scrambling to estimate your income and taxes at the end of the year.

Guizmo

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Re: Self Employed Retirement Options
« Reply #5 on: January 20, 2015, 09:43:13 AM »
Thanks y'all.

I just started maxing out the 457 and I maxed the IRA for the last few years. I do have an option to contribute to the 401k so I might just do that moving forward.

However, I don't have any deductions for that side gig income and it seems like opening up the SEP would give me some business deductions for 2014 taxes. 

DavidAnnArbor

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Re: Self Employed Retirement Options
« Reply #6 on: January 20, 2015, 10:56:41 AM »
I think for 2014 it is too late to put money in a Solo 401k because that would have to been set up by the end of the 2014 year. 
You probably can still set up a SEP for 2014 though.  But going forward 2015 and beyond, you can establish a Solo 401k which permits you a greater amount (compared to a SEP) to place into the account for tax deferral.