Self-employed retirement plans? Help!

**scfr** · 03-26-2008, 02:59 PM

My husband has a SEP IRA, and I also had one when I was self-employed. DH used to have a Keogh plan, but thankfully he was able to roll it over to a SEP IRA ... I say thankfully because the paperwork requirements for a SEP IRA are much simpler. We VERY briefly considered the option of an individual 401(k) for DH but eliminated it almost immediately because of the paperwork and administrative requirements, such as having to hire a plan administrator. However, it was an easy decision for us because there wasn't a significant difference in how much he could contribute.

If you think your freelance income will increase, you may want to go with a SEP for the simplicity.

**maat55** · 03-26-2008, 03:04 PM

If you qualify, I personally would max out the roth first, then fund any other IRA.

**jIM_Ohio** · 03-26-2008, 03:10 PM

Can you define the following parameters:

1) what is self employed income (3 year avg is good)?
2) what is combined gross income and AGI? What was taxable income on 2007 tax return?
3) How much can you afford to put away into retirement?

3) is a kicker- because if you have 30k-70k you want to set aside, the options change from only setting aside 4k-10k.

IRS pub 590 is where I would look and will point you to around 5-8 options. I looked this up for a friend earlier this year. Post replies and I will assist taking this one level deeper.

**ThriftoRama** · 03-26-2008, 03:44 PM

I'm not sure what the freelance income will be. Been at it this time around for less than a year, with a new batch of clients, plus I'm taking some time off to have a baby soon.

I could comfortably put away the first $15,500 allowed in a solo 401k. Not sure how much extra on top of that, at least this year.

My goal is to sock away at least $15,500 a year into this account, to make up for not having an employer plan now that I'm on my own.

As for administrators, I have accounts through Schwab and they would be the plan administrator. Apparently, it's not as expensive or as difficult to do these days, now that more companies are offering them and there is more competition for business.

My concern is that IRAs limit you to about $5,000. And I might not qualify to put much more than that in a SEP because my income won't be high enough...

And AGI last year was about $136k.

**MonkeyMama** · 03-27-2008, 05:48 AM

The downside to solo 401ks is that they are expensive. There is a lot of work involved to do a plan right (keeping it within the ever changing retirement laws, and even filing tax returns, etc.). Likewise, my experience is really that you get what you pay for AND there tends to be a lot of hidden fees with this kind of thing. (Sure many companies will offer to do a solo 401k for very cheap, but they get reimbursed for their expenses somehow/somewhere). I just talk from experience with bigger plans.

All that being said, it sounds like you may be a good candidate for one. I would just be wary with your administrator. I wouldn't necessarily go for the "Cheapest." In fact - that is ALWAYS bad news.

I assume you don't have to do payroll to contribute to a solo 401k. I am pretty sure that is the case. But if you had to, that's a whole other ball of worms. (Payroll = tax withholding, quarterly reports, and W-2s, etc., etc.).

The reason I say you are a good candidate is that you want to put a large amount in and have a rather high income. IT is a good tax shelter. If you can put $10k+ more every year a way than otherwise, tax free, than it isn't bad.

You have a new baby on the way? You have until 12/31/08 to open a solo 401k for a 2008 contribution. I would personally wait until the baby came and see how that affects your income. I wouldn't spend the money to set it up right now. Just another piece of advice. If you still feel at the end of the year you want to put away $15k+ and you can maintain that contribution level for a while, then I would consider it late in the year.

**scfr** · 03-27-2008, 03:00 PM

ThriftORama - Just in case you did not know, MonkeyMama is a CPA ... She knows what she's talking about!

**ThriftoRama** · 03-27-2008, 03:18 PM

Just an FYI. I was going to choose Schwab as the administrator because we have all of our household brokerage and retirement accounts with them, and they waive fees when you have a certain household balance. Although, I have requested printed info on solo 401ks from several companies. Also, I have no employees and I would be the only person in the plan- not sure if that reduces the cost or paperwork involved.

As for the amount to be saved. I'm certain I can put between 10k and 15k in every year. We live well on one income only right now, so the money will not be missed. Plus, it's money we wouldn't have had if I'd stayed at my staff job because I maxxed out my company 401k every year.

Our investment style? We're in our mid 30s and we have been stashing the maximum amount we can in our retirement accounts for the past 5 years, while we' still young enough to get the benefit of time and compounding. For me, $5k in an IRA is a laughable amount.

So is my best bet to sock away the money in a separate savings account until the fall and then make a decision about where to stash it and what style of account to put it in?

You guys have been super helpful already.

**jIM_Ohio** · 03-30-2008, 04:59 PM

Read IRS pub 590 for self employed plans- have you done this yet?

**MaksimFA** · 03-30-2008, 08:47 PM

I got a great retirement plan booklet I can mail out if you want. email me,.

Otherwise.. solo 401k's can be cheap. AIM and Oppenheimer charge $15 per person per year. I hardly call that expensive. And max contribution is upwards of 44k. You may need to go through an advisor to setup that plan, paricularly if you want to have the funds be load waved.

**zetta** · 04-07-2008, 12:57 PM

My understanding is that you can do the ROTH contribution PLUS 20% of your business earnings into the SEP-IRA. So if you earn at least $52,500 from your freelance work, you could put away $5000 to the ROTH and $10,500 to the SEP-IRA, thus meeting your goal.

I don't know much about the individual 401k, but in a regular 401k I think there is a percentage limitation as well -- ie 15% of your personal salary or $15,500, whichever is less?

So if you earn less than $50k, I'm not sure that you will be able to shelter $15,500. I'm not a financial advisor, so someone please correct me if I'm wrong about this.

Self-employed retirement plans? Help!