SEP vs IRA

[zetta]

Now that I'm contracting and am a "sole proprietor", what would be the advantages of opening a SEP rather than just contributing $5k to my traditional IRA each year? (We no longer qualify for ROTH IRA due to my income.)

[MonkeyMama]

None. You can do both though.

Did you know that?

If you make enough money, you can also put more into the SEP. Otherwise there really is no difference. Well except you get a tax deduction for the SEP now - which you need.

Really I would do both. You can put $5k into the traditional and then approximately 25% income into your SEP (it's a weird calculation so not exactly 25%). I wouldn't even try to figure it out until you do your tax return - then you can fund it by April 15th.

In retirement the SEP distributions will be taxable. The non-deductible IRA distributions will only be partly taxable (earnings). Just FYI.

[kv968]

Something to keep in mind also is that starting in 2010 you can directly convert your traditional IRA (paying all applicable taxes) into a Roth regardless of your income level.