Author Topic: Tax Advantaged Accounts - Small Business Owener  (Read 2533 times)

SelfMadeNJ

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Tax Advantaged Accounts - Small Business Owener
« on: March 24, 2015, 10:07:25 AM »
I own a small business and want to know how to effectively allocate my savings. I have a SEP IRA that I max out at 25% of my income. I put the remainder of my savings in a Vanguard Taxed Account with index funds and a TD Ameritrade taxed account that I manage myself.

Is there any other tax advantaged accounts that i can place my money as a small business owner?

Thanks for all of your help.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3603
  • Age: 37
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #1 on: March 24, 2015, 10:21:33 AM »
Need more details - income?  Do you have employees?

If no employees, and you are earning less than about 250K, the individual 401K is fantastic - 25% (same as SEP) + 18K employee deferral (24K if you're over 50).

SelfMadeNJ

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #2 on: March 24, 2015, 10:26:23 AM »
It is a 1 person LLC

Income is less than 250K

Can I hold the individual 401k in addition to the SEP IRA?

Thanks for the help.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3603
  • Age: 37
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #3 on: March 24, 2015, 11:13:52 AM »
Yes - but the 25% limit, I believe, applies across both.  http://www.irafinancialgroup.com/can-i-make-contributions-to-both-a-sep-and-a-solo-401k-plan.php

So you could do 25% into the SEP IRA, then hold only deferrals in the 401K (18K).

Also - based on the fact you mentioned the 25% contribution to the SEP-IRA, I'm assuming your LLC is taxed as an S-Corp?  If you're taxed as a sole-proprieter, the computation is different for these accounts.

SelfMadeNJ

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #4 on: March 24, 2015, 12:02:36 PM »
Thats perfect. Thank you very much.

Yes I am taxed as an S-corp.

My only concern is that I am saving a little over 50% of my income as it is and if I pushed almost all my savings into tax advantaged accounts I would not have access to it without penalty until 59 1/2. As I am only 25 and saving over 50% I will hopefully be FI and possibly FIRE well before 59 1/2.


DavidAnnArbor

  • Handlebar Stache
  • *****
  • Posts: 2175
  • Age: 54
  • Location: Ann Arbor, Michigan
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #5 on: March 24, 2015, 01:27:54 PM »
Yes - but the 25% limit, I believe, applies across both.  http://www.irafinancialgroup.com/can-i-make-contributions-to-both-a-sep-and-a-solo-401k-plan.php

So you could do 25% into the SEP IRA, then hold only deferrals in the 401K (18K).


I was told by an IRS agent, Vanguard, and Fidelity that you can't do both at the same time. I think because the Vanguard and Fidelity have to submit the solo 401K program to the IRS or another federal government entity for approval, and the rules somehow seem to bar making contributions to both a SEP and a 401K at the same time, even if you're just making employeE contributions to the solo 401k, and employeR contributions to the SEP. It seems that Fidelity's solo 401K has a plan approved by the Federal gov't. that could conflict with the rules of the SEP with Vanguard as an example. If you've already set up a SEP, you can still keep it, you just can't simultaneously contribute to it in the same tax year as your solo 401K.
« Last Edit: March 24, 2015, 01:39:27 PM by DavidAnnArbor »

SelfMadeNJ

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #6 on: March 24, 2015, 01:47:32 PM »
Interesting. I just read online that you can do both if you are employed and also own an outside business.

In my case, I own a business but do not have a job outside of that so therefore I believe you are right that you can't contribute to both in the same year.


dandarc

  • Magnum Stache
  • ******
  • Posts: 3603
  • Age: 37
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #7 on: March 24, 2015, 02:01:05 PM »
My only concern is that I am saving a little over 50% of my income as it is and if I pushed almost all my savings into tax advantaged accounts I would not have access to it without penalty until 59 1/2. As I am only 25 and saving over 50% I will hopefully be FI and possibly FIRE well before 59 1/2.
This is just not true on the 59.5 part.  Two ways to get to the money early:

1.  Roth Conversion Pipeline
2.  Substantially Equal Periodic Payments

So that's not something to worry too much over.  And as to the SEP / 401K, it would seem easier to just use the SoloK, regardless of if you can have both or not.

SelfMadeNJ

  • 5 O'Clock Shadow
  • *
  • Posts: 7
Re: Tax Advantaged Accounts - Small Business Owener
« Reply #8 on: March 24, 2015, 05:16:12 PM »
That's great info never realized that