IRA Limits

[maat55]

I'm looking to invest 11,500 a year between I and DW. She invests 1,800 with match from employer yearly. That leaves 9,700 between us to invest. I'm self-employed and wonder if I can invest in a SEP-IRA and fully fund a Roth.

What is my best option with the 9,700 after DW has invested 1,800 in 401k.?

[noppenbd]

Why not do 2 Roths or a Roth and a traditional IRA depending on your tax situation? You can put in 5000 per person.

[maat55]

Why not do 2 Roths or a Roth and a traditional IRA depending on your tax situation? You can put in 5000 per person.

My though was to put 3,200 in Roth for DH and 4,000 in Roth for me, then an unknown amount in SEP.

[jIM_Ohio]

What is Taxable Income?

Use 401k and SEP to put you under $66100 in taxable income and then put the rest into a Roth. This way the money is going into Roth at 15% tax bracket.

$1 into a 401k is same as $.75 into a Roth if in 25% tax bracket, so $9700 might be greater if you use the SEP, based on tax advantages of pre-tax investing.

[maat55]

What is Taxable Income?

Use 401k and SEP to put you under $66100 in taxable income and then put the rest into a Roth. This way the money is going into Roth at 15% tax bracket.

$1 into a 401k is same as $.75 into a Roth if in 25% tax bracket, so $9700 might be greater if you use the SEP, based on tax advantages of pre-tax investing.

What if our taxable income is less that 65,000 combined before investments?

[maat55]

Can I do this? And is there a better way?

1800 wife 401 includes match
3200 wife roth
4100 my roth
2400 my sep ira

[noppenbd]

If taxable income after 1800 contributions to 401k puts you under 65100 taxable income for the year I would do:

1800 wife 401k
4850 wife's Roth
4850 your Roth

Putting money in a SEP is not be that beneficial since you are in 15% tax bracket. The Roths would be preferable IMO.

[maat55]

If taxable income after 1800 contributions to 401k puts you under 65100 taxable income for the year I would do:

1800 wife 401k
4850 wife's Roth
4850 your Roth

Putting money in a SEP is not be that beneficial since you are in 15% tax bracket. The Roths would be preferable IMO.

Thanks noppenbd, I wasn't sure if wife could exceed 5000 in IRA's together.

[noppenbd]

The IRA is an individual account so the limits are per individual.

[maat55]

The IRA is an individual account so the limits are per individual.

Do pretaxed 401k's apply toward the 5000?

[sweeps]

Do pretaxed 401k's apply toward the 5000?

No, your 401k contributions are completely separate from your IRA contributions.

[jIM_Ohio]

What if our taxable income is less that 65,000 combined before investments?

Use the Roth before anything else. 5k to your roth, 4700 to wife's Roth.

401k/SEP IRA are saving you $.15 for every dollar invested (15% tax bracket). I would suggest paying the extra $1455 in taxes to contribute $9700 to a Roth now.

Because if you put $9700 into 401k/SEP IRA it might cost you $2425 in taxes to take it out.

This calculation is fuzzy math, because you are comparing the same amounts invested, even though more is really going into Roth (because Roth is denser than a 401k or SEP IRA) based on fact Roth is post tax.

[LivingAlmostLarge]

Unless you get a match in the 401k.