Anyone familiar with self-employed retirement options?

[disneysteve]

I contribute to a Roth. My wife does a Roth and a 401K. And that's it. I wish we could be putting more away in tax-advantaged plans for retirement but my employer doesn't offer anything.

I do, however, make a few thousand/year outside of my job between surveys, consulting, speaking fees, etc. I was thinking that there must be some type of plan I could open, like a SEP-IRA, and be able to put that money away tax-deferred. I plan to ask my accountant about this when we next meet but I figured somebody here probably knows the answer, too.

[Scanner]

From what I read, a SEP-IRA gives you the most flexibility but a Keough may allow you to stash more (something like $30,000 - it's generous)

Unfortunately, this is a matter of tax law/accounting. . .you won't be able to stuff 100% of your self-employed income into a deferred plan, at least I don't think you are able.

While normally I am of the opinion you do a lot of investing yourself, a call to your CPA or sit down with him may be in order. If you don't want to do that, calling T. Rowe Price and talking to one of their financial advisors on the phone (I think you have funds there) for free would be good too.

I have used them on occasion and they are helpful.

[Scanner]

Here's a nice summary:

TD AMERITRADE: Planning & Retirement > Choosing the Right Retirement Plan for a Small Business

[disneysteve]

From what I read, a SEP-IRA gives you the most flexibility but a Keough may allow you to stash more (something like $30,000 - it's generous).

I wish I had a spare 30K to put away. I'm talking about maybe $300/month. I'll talk to my CPA and see what he has to say.

[Scanner]

Well, again, my knowledge is limited, if you want to stash $300/month away, for a SEP-IRA, extrapolating that out, you would need $14,400 in speaker fees, consulting, survey fees, etc. That would be 25% of your income.

But the fact that you are an employee elsewhere. . .that's where it gets fuzzy in my head. Does the gov't just take into account your Schedule C income or your total family intake?

I don't know.

Actually, I forgot which thread - I asked in jest if DC's could do these surveys but I forgot which thread.

[disneysteve]

Well, again, my knowledge is limited, if you want to stash $300/month away, for a SEP-IRA, extrapolating that out, you would need $14,400 in speaker fees, consulting, survey fees, etc. That would be 25% of your income.

If I can only stash 25% of my self-employment income, it wouldn't work. I was hoping there was something that would let me put away all of it.

[Scanner]

Another suggestion (sorry. . .I'm slow this a.m. ) -

Let's say you want to stuff an extra $5000 away per year outside of your Roth.

I think you have "asset allocated funds", right (TRP Target Something?) - you could instead go with a total growth fund and then deploy the "above and beyond" into muni bonds to give you the same allocation.

(yes, Scanner is on his muni bond lecture again - can you tell I'm a fan?)

So, let's say you have 80/20 in stocks/bonds per year with $4000/year in your Roth. You said your portfolio is around $400,000, I think.

Well, you could put maybe $375,000 into Equities, like something like Janus Twenty or even Vanguard S & P 500.

$25,000 into a bond fund or bond ETF.

Then buy munis above and beyond that Roth - see what I mean?

So, for 2007, you'd have

$25,000 in a Bond fund
$5000 in Muni or muni bond fund
$380,000 in equities

That gives you a 7.3% position in bonds so you may need to fudge the amounts to your desire.

Balance accordingly to your desire but you get the idea. You seem to want some part of your portfolio to be bonds so why not take advantage of muni's tax-free status?

[Scanner]

Sorry, one more thing and I'll be busy this afternoon. . .a nice thing about muni's (and again, I know they are not popular here because the yields are sluggish) is that it now becomes a flexible part of your portfolio. You are using it for retirement per se, but let's say in 4 years, you are compelled to take that Icelandic Cruise you've been pining for.

You just redeem the bonds and use the money for that.

You just can't do that with your Roth IRA or 401(k)'s as easily.

[disneysteve]

Thanks for the link. Looks like a SEP wouldn't make sense as I would only be able to put away maybe $1,000/year.

[scfr]

For information, IRS Publication 560 (Retirement Plans for Small Business) is an excellent place to start. You can download it at the IRS' web site.

[MonkeyMama]

Yes - looks like you figured it out. Limited to 25%, but you can put in up to around $40k if you made the $225k or whatever it is.

I wouldn't entirely rule out the $1k. It is tax-deductible. I had been pondering doing the same thing myself. I think you can roll it over to a regular IRA at some point (I would have to check) so though it might not be a lot to put aside, you could put it in a MM or CD or even open an automatic investment plan. Starting small but eventually you should be able to grow it or lump it with your other IRAs (roll over).

Unfortunately the catch is that your self-employment tax is determined before your SEP deduction. So it won't help you from the nasty self-employment taxes. But it will help your overall tax situation.

I would say discuss it with your tax preparer. You have until you file your tax return to decide. So probably just a good idea to discuss with them and keep it in mind. You may change your mind when you see how it affects your tax bill. IT is no harder to open a SEP than a regular IRA. A really simple way to save some additional taxes.

[moneybags]

I think you can contribute more with a Solo 401K. Here is a summary of options:

Tax-Free Retirement Accounts for the Self-Employed (Retirement: Personal Finance) | SmartMoney.com