I want to open a second retirement account (in addition to existing Roth IRA). I've done a lot of research but my head is still spinning...
Some basics:
- 25 years old
- Self employed, freelance income
- Expected income of $50-$60k this year
- Hoping to increase to 60-75k next year, but definitely variable
- Already maxing Roth IRA
- Only other accounts are taxable (~20k that I may wish to transfer over to a tax advantaged account)
- No employees now, but possibility of employees within the next 5 years
I'm trying to decide between a Solo 401k (in which case I'd probably go ROTH), and a SEP IRA (which, as I understand it, has to be traditional?)
The solo 401k has the obvious benefit of larger contribution limits, availability in both roth and traditional, etc. However, I aspire to expand my business which may involve employees one day, and I've read that Solo 401k's are tricky when transitioning from a solo operation to a business with employees. I also don't want a retirement account to hold me back from hiring employees if it otherwise makes sense for business.
So, that's my first dilemma.
The other is the age-old Roth vs Traditional.
Even at an income of $60k, the new 20% pass through income deduction results in a taxable income of ~$36k after the standard deduction. That puts me in the 12% bracket. I can't imagine I'll be paying less than that in retirement, which kinda makes me want to just sock away as much Roth funds now while I'm in a relatively low income bracket. Also, I have money in a taxable account which I paid very little tax on, which could be thrown into a Roth over time. The bulk of my tax liability at this time is self employment tax, which cannot be reduced by any retirement contributions as far as I know.
Any thoughts/advice? Much appreciated!