SEP and/or condo-ing advice needed

[gratefuled]

My wife has just quit her job and I'm maybe a year behind her. We're planning to move from a high-dollar area of the Northeast to a low-dollar area of the Southeast. We currently exceed the IRA income limit so when she lost access to a 401-K program she lost access to pre-tax retirement funding.

We own a triple-decker house in the Boston area. One floor of the house is our primary residence. Our market research has convinced us that the way to get the most money out of this asset is to condo it and sell the units off individually.

My wife can handle the condo process but since she's now unemployed I'd like to leverage the conversion as much as possible. It seems logical that we should be able to finagle it so that as a result of this process she's eligible for a SEP IRA. Web research makes this look like a good option for shielding up to $40K of the gain from the condo sales, and of course I'll talk to an accountant, but I wonder if anyone would care to weigh in?

Thanks...

Ed

 

[Marshac]

Interesting idea, and I'll be watching this thread for the answers... quick question though:

How did your company obtain the assets which it's going to be selling? I'm assuming that you're going to form a LLC or Corp (25% contribution limit instead of 20% I think), so are you going to "sell" the proprty to your company? How would capital gains factor into this transaction?

 

[gratefuled]

Well, we bought a three-unit house (very common in the Boston area) and we live in one unit as our primary residence and rent the other two out, so there are no corporate entities involved. I don't think a SEP-IRA requires a corporation...you're allowed to set up a SEP-IRA as an individual income earner. In other words, I don't think it'll be necessary to do any incorporation work. But to convert the capital gains from sale of the two units we don't inhabit into income, I might have to trust the units out and then have the trust pay my wife a big fee in the close. I don't know, I've still got to run this by an accountant.

But the big question I don't seem to be able to answer on the IRS site or on Fidelity, etc., is whether or not my income would disqualify her from SEP participation. If so, this is all a moot point in my circumstances.

Ed

 

[Marshac]

No, you don't need to be a corp, but I believe what type of business you are affects the maximum % of income you can divert into IRA contributions.


I think you might be interested in IRS publication 560 on page 6.

http://www.irs.gov/pub/irs-pdf/p560.pdf

 

[gratefuled]

Oh, Jeez...it's either pay capital gains tax and take no SEP/IRA deduction, or pay self-employment tax and take a SEP/IRA deduction.

They gotcha comin' and goin'.