Looking For Help

[animalhouse]

Hey, just looking for some advice.

I'm 21 years old, just graduating from college luckily with $0 debt....thank you scholarships.

Current value:

Mutual funds: 12k
Savings: 5k
Debt: 0

I'm looking at expanding into roth IRA, but being self-employed no 401k will be available. Is there anything else I should look at investing in?

Thanks a lot...

[MonkeyMama]

Re: Looking For Help

If you are self-employed, you can invest in a SEP IRA. It is really a great option as you can take a full $42k deduction (beats the $15k max on 401ks). BUT, is it something like 25% of your net profit, considering a couple of other items. You have to make a lot of profit to get that max!! See calculation:

"In the case of self-employed people, the contribution is based on the net profit from the business (not the gross income). Calculating the maximum allowed requires you to compute the self-employment tax
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first. This seems to be the formula, where "CR" is the contribution rate, like .15 for a 15 percent rate:
CR * ( ( Schedule C profit - ( 0.5 * Shedule SE tax )) / ( 1 + CR ) )"

Like other IRAs, you have until April 15th of the following year to make the contribution (for a current year contribution).

SEP IRA contributions are tax-free.

Off the top of my head I believe you can contribute to both an IRA and a ROTH or Traditional. If you have the money it is a good way to maximize your retirement contributions. (But I would double check on this).

If you are incorporated you can still do SEP, but I Assume you are just Schedule C?

[greedy4chips]

Re: Looking For Help

Monkeymama said it all!

Congrats on graduating and being debt free!

Hopefully you can read alot of stories on here to keep you from ever getting into debt. It won't be easy, but if you start now with a disciplined approach to spending, you will be far better off in 15 years!

[Ima saver]

Re: Looking For Help

Can you contribute to both a regular IRA and a roth the same year? I did not think so?

[neatdesign]

Re: Looking For Help

I have no suggestions or recommendations to make, only wanted to say that I wish I had your financial acumen when I was your age. Good on you!!

~ Jenney

[sweeps]

Re: Looking For Help

A SEP IRA is a good idea. Also look into a Solo 401(k) plan. Both allow you to put away a large amount for retirement.

[Mathew Green]

Re: Looking For Help

Can you contribute to both a regular IRA and a roth the same year? I did not think so?

Yes, you can. But your total contribution during any one year is limited to the amount you could have contributed to a single account.

Here is the official language:
"If contributions are made to both Roth IRAs and traditional IRAs established for your benefit, your contribution limit for Roth IRAs generally is the same as your limit would be if contributions were made only to Roth IRAs, but then reduced by all contributions (other than employer contributions under a SEP or SIMPLE IRA plan) for the year to all IRAs other than Roth IRAs."

There are also special rules for people whose Ajusted Gross Income is above/below certain limits. For details see "How Much Can Be Contributed?" and the sections that follow at: http://www.irs.gov/publications/p590/ch02.html#d0e8975

All IRS publications and forms are available in PDF format at http://www.irs.gov

Disclaimer: Laws and regulations change and people make mistakes, so please read the above publications to get current official IRS information.

[Ima saver]

Re: Looking For Help

Ok, I understand now. I thought she meant that you could contribute $4000 to a roth and then another $4000 into a regular IRA! (in the same year) Thanks for clearing that up!

[Broken Arrow]

Re: Looking For Help

I wish I was that smart when I was younger.

Besides retirement, please don't forget to expand that EF up to roughly six months of living expenses. 5k sounds good, but depending on your needs, it may or may not be enough.