SEP IRA

[Chesleygirl]

I visited a CPA who told me that since I am self employed, working from home, I can have a SEP IRA in addition to my traditional and Roth IRAs.  I am not a business owner, I do independent contract work a business, for which I am paid every time I turn in the work.

I read online that I need an EIN number to set it up, which I do not have. Has anyone else here set up a SEP IRA and used your social security instead of an EIN number?

[wenchsenior]

I make about half my relatively modest income as a Sole Proprietor contractor.  I did get the EIN number a few years ago because I was considering setting up a SEP IRA or solo 401k.  Getting the number was quite easy, IIRC, so go ahead and get one if you think you might want to go that route.

I ended up just setting up a regular and Roth IRAs for myself in the end, because I don't usually make that much.  I'm keeping other options open, however.

I am not sure whether you can have contribute to a SEP IRA and a regular/ROTH IRA in the same year, though.

[bacchi]

I read online that I need an EIN number to set it up, which I do not have. Has anyone else here set up a SEP IRA and used your social security instead of an EIN number?

It depends on the brokerage. It takes only a few minutes to get one, though, at IRS.gov.

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

[Chesleygirl]

I read online that I need an EIN number to set it up, which I do not have. Has anyone else here set up a SEP IRA and used your social security instead of an EIN number?

It depends on the brokerage. It takes only a few minutes to get one, though, at IRS.gov.

https://www.irs.gov/businesses/small-businesses-self-employed/apply-for-an-employer-identification-number-ein-online

Thanks.

[seattlecyclone]

You may find a solo 401(k) to be a better option than a SEP IRA. Both of them allow you to make "employer" contributions up to 20% of your net, but the 401(k) also allows you to contribute $18k of "employee" contributions. Only at rather high incomes where the SEP percentage runs into the $55k overall contribution limit do the plans have equal potential. Below that, the 401(k) will allow you to contribute more.

[AdrianC]

You may find a solo 401(k) to be a better option than a SEP IRA. Both of them allow you to make "employer" contributions up to 20% of your net, but the 401(k) also allows you to contribute $18k of "employee" contributions. Only at rather high incomes where the SEP percentage runs into the $55k overall contribution limit do the plans have equal potential. Below that, the 401(k) will allow you to contribute more.

+1.

I've had both. 401k is better when income is lower. Fidelity has a nice calculator showing how much you can put into a 401k.

https://www.fidelity.com/retirement-ira/small-business/self-employed-401k/overview

I've been able to stash nearly 1/3 of my income in it this year.

[tj]

I don't know why anyone would use a SEP over a SIMPLE IRA.  A SIMPLE IRA lets you put $12k per year in addition to iRA and 401k.

A SEP is limited to just 25%-ish of your profit. If 25% of your profit is more than $12k, I don't know why you wouldn't be using a Solo 401k.

[PDXTabs]

I don't know why anyone would use a SEP over a SIMPLE IRA.  A SIMPLE IRA lets you put $12k per year in addition to iRA and 401k.

A SEP is limited to just 25%-ish of your profit. If 25% of your profit is more than $12k, I don't know why you wouldn't be using a Solo 401k.

This is good to know! I might have some self employment income next year and I would love to be able to put more than 25% of it into an IRA. Obviously, the SEP IRA is awesome if you have $216k of profit and can stash away $54k into the SEP IRA, but I'm not in that position.

EDIT - In my case I can't use the solo 401k because I already maxed out my 401k at work.

[seattlecyclone]

I don't know why anyone would use a SEP over a SIMPLE IRA.  A SIMPLE IRA lets you put $12k per year in addition to iRA and 401k.

A SEP is limited to just 25%-ish of your profit. If 25% of your profit is more than $12k, I don't know why you wouldn't be using a Solo 401k.

This is good to know! I might have some self employment income next year and I would love to be able to put more than 25% of it into an IRA. Obviously, the SEP IRA is awesome if you have $216k of profit and can stash away $54k into the SEP IRA, but I'm not in that position.

EDIT - In my case I can't use the solo 401k because I already maxed out my 401k at work.

I believe that someone who maxes out their employee-side 401(k) contributions cannot also max out a SIMPLE IRA.

As long as you do max out your 401(k) at your main job, the SEP limits and solo 401(k) limits are essentially equal for you. The same employer-side contribution is allowed under each.

[PDXTabs]

I believe that someone who maxes out their employee-side 401(k) contributions cannot also max out a SIMPLE IRA.

As long as you do max out your 401(k) at your main job, the SEP limits and solo 401(k) limits are essentially equal for you. The same employer-side contribution is allowed under each.

ZOMG why is this so confusing? Didn't we just go through a round of tax reform?

Thanks for the info!

[AdrianC]

One more advantage for the solo 401k - if you're over 50 you get to put in an extra $6k catch up contribution.

[tj]

I don't know why anyone would use a SEP over a SIMPLE IRA.  A SIMPLE IRA lets you put $12k per year in addition to iRA and 401k.

A SEP is limited to just 25%-ish of your profit. If 25% of your profit is more than $12k, I don't know why you wouldn't be using a Solo 401k.

This is good to know! I might have some self employment income next year and I would love to be able to put more than 25% of it into an IRA. Obviously, the SEP IRA is awesome if you have $216k of profit and can stash away $54k into the SEP IRA, but I'm not in that position.

EDIT - In my case I can't use the solo 401k because I already maxed out my 401k at work.

I believe that someone who maxes out their employee-side 401(k) contributions cannot also max out a SIMPLE IRA.

As long as you do max out your 401(k) at your main job, the SEP limits and solo 401(k) limits are essentially equal for you. The same employer-side contribution is allowed under each.

I'm not aware of any regulation that disallows SIMPLE IRA contributions while maxing out a 401(k). The limits are completely different...I don't have a main job though, so it isn't applicable.

[Cpa Cat]

I'm not aware of any regulation that disallows SIMPLE IRA contributions while maxing out a 401(k). The limits are completely different...I don't have a main job though, so it isn't applicable.

They are both defined contribution plans subject to a shared limit. $18,000 (plus catch up) is the most your aggregate contributions can be as an employee.

[tj]

I'm not aware of any regulation that disallows SIMPLE IRA contributions while maxing out a 401(k). The limits are completely different...I don't have a main job though, so it isn't applicable.

They are both defined contribution plans subject to a shared limit. $18,000 (plus catch up) is the most your aggregate contributions can be as an employee.

Even though the SIMPLE doesn't share the limit of $18k? It has a limit of $12,500 + a $3k catchup. So you are saying someone could put $12.5k in a SIMPLE and another $5.5k in a company 401k, but could not put more than a combined $18k in the two if under the catchup age?

[seattlecyclone]

I believe that someone who maxes out their employee-side 401(k) contributions cannot also max out a SIMPLE IRA.

As long as you do max out your 401(k) at your main job, the SEP limits and solo 401(k) limits are essentially equal for you. The same employer-side contribution is allowed under each.

ZOMG why is this so confusing? Didn't we just go through a round of tax reform?

Thanks for the info!

Yeah, our hodgepodge of retirement account options is completely needless and would have been reformed if the goal was really to simplify things.

[kayak3]

A SEP is limited to just 25%-ish of your profit. .

I was told it's not your profit but your gross taxable income for a SEP

[Cpa Cat]

I'm not aware of any regulation that disallows SIMPLE IRA contributions while maxing out a 401(k). The limits are completely different...I don't have a main job though, so it isn't applicable.

They are both defined contribution plans subject to a shared limit. $18,000 (plus catch up) is the most your aggregate contributions can be as an employee.

Even though the SIMPLE doesn't share the limit of $18k? It has a limit of $12,500 + a $3k catchup. So you are saying someone could put $12.5k in a SIMPLE and another $5.5k in a company 401k, but could not put more than a combined $18k in the two if under the catchup age?

Right.

I don't make the rules. And therefore can't explain the logic. It would make a lot more sense if the SIMPLE just had an $18,000 limit. It would reduce confusion and make it more useful. Why give it arbitrary lower limits? May as well ask why the sky is blue. Well... I'm guessing a blue sky actually makes sense.