SEP-IRA's, SEP-401(k)'s, etc.

[southerndoc]

Can someone explain the difference between a SEP-IRA and a SEP-401(k) in terms of benefits for contributions?

Here is why I ask (2 scenarios):

1. I will start moonlighting as an independent contractor in 6 months. I am contributing to my hospital's 403(b) plan, and will also contribute to my Roth IRA (since I will be below the max income limit).

Can I also set up a SEP-IRA or SEP-401(k) since I am an independent contractor? Which is best in this case?


2. If after residency I go to work full-time as an independent contractor, which is better: SEP-IRA or SEP-401(k) assuming my "employer" doesn't contribute anything to my retirement?

These two types of retirement plans are confusing to me.

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[Taurus]

I have worked as an independent contractor before and when I did I opened a SEP-IRA for that year. There are many retirement plans and each one has certain rules you have to follow such as max contribution amount, deadline to file, how to report on taxes, etc. Which one is best for you of course depends on your circumstances. Call up one of these companies like Vanguard, Fidelity, TD Ameritrade, etc and ask for a retirement specialist and a retirement package in the mail. They can better answer your questions.

 

[mshheaddoc]

Here are some good reads:

https://www.americancentury.com/wor...rn_articles.jsp?brs=selecting_retirement_plan

http://www.selfemployedweb.com/self-employed-retirement-plans.htm

http://flagship.vanguard.com/VGApp/hnw/content/AccountServ/Retirement/ATSSEPIRAOverviewContent.jsp


http://www.selfemployedweb.com/self-employed-401k.htm


I would suggest talking to someone at Vanguard or Fidelity. Some of this stuff is way complicated in setting up (like the 401K can be pricey). I honestly probably wouldn't go for the 401K but that is just my honest opinion. I'd stick to the IRA's.

 

[Taurus]

When you're the business owner, there is no cost difference between the SEP-401(k) and SEP-IRA. Both work by allowing you, the employee, to contribute a certain amount and then your employer, ie, you, matches a certain amount. How the contribution limit is calculated depends on the retirement account type. One plan may allow you to set aside more than other types. It depends on what your retirement strategy is. Their filing date is also different. I went with the SEP-IRA because I missed the 12/31 filing date for the SEP-401(k) which would have allowed me to contribute more and reduce my taxes even more. Anyways, I don't want to give financial advice on this board. You can get more reliable information from the pros.

 

[etf]

you can only put like $3000-$5000 in an IRA, but you can dump $14,000-$16,000 in a 401k. I think the choice is obvious.

 

[southerndoc]

you can only put like $3000-$5000 in an IRA, but you can dump $14,000-$16,000 in a 401k. I think the choice is obvious.

I believe the limit is around $40,000 for a SEP-IRA.

You are correct that traditional and Roth IRA's have limits (currently $4,000, increasing to $5,000 next year).

You can contribute to both a SEP-IRA and a Roth IRA if your income isn't too much to qualify for the Roth.

I'm having trouble deciding between a SEP-IRA and the Self-employed 401(k). I think you can contribute more to the Self-employed 401(k). The limit for a SEP-IRA is 25% of your compensation (self-employed compensation) up to a maximum of $46,000 for 2006. The limit for the Self-employed 401(k) seems to be an additional $15,000 (the employee's contribution).

The $46,000 for both the SEP-IRA and Self-employed 401(k) are "employer contributions," but in the case of being self-employed with you as the only employee and the business not being incorporated, this is basically your self-employment income.

What I'm unclear of is can you contribute the additional $15,000 to a self-employed 401(k) if you've already maxed out a 403(b) contribution with your full-time employer? My guess is no. Nonetheless, I think I need to discuss this with a CPA.