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SEP-IRA
Old 02-15-2005, 05:20 AM   #1
 
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SEP-IRA

My husband is about to open SEP-IRA. I guess he was told to wait until maturity of his current account and then roll it over to SEP-IRA. Is there anything we should know about doing that? Sorry, we are really cluless when it comes to things like that. What company would you recommend? Is Fidelity good? Perhaps some other one? Anything special we should do/know? Please help.

Maggie
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Re: SEP-IRA
Old 02-15-2005, 06:29 AM   #2
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Re: SEP-IRA

Hi Maggie,

Not enough info for me to help much. Many businesses will set up SEP/IRAs for their employees, make contributions directly into those accounts but give the employee the ability to direct what investments to make within the individual account.

Is the employer asking you where you would like to establish the account ?

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Re: SEP-IRA
Old 02-15-2005, 06:31 AM   #3
 
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Re: SEP-IRA

Actually, my husband is self employed and he knows nothing about investing. I got some info from here that SEP-IRA might be good for him, but we don't know how to go about it
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Re: SEP-IRA
Old 02-15-2005, 08:07 AM   #4
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Re: SEP-IRA

Is there an 'investment advisor' in this mix. If so, be wary. Find out how s/he is earning their keep.. it may be from the funds, insurance or investments recommended.

Go to either the Vanguard or Fidelity websites and download their forms and info on SEP-IRAs. *Read same.

When you initially fund it put the $ in a money market fund until you have find an investment that suits you. *Most people choose mutual funds. *Were I you I would first look at the funds on the Forbes list, they rate fund performance separately in up and down markets. *Lurk on the FundAlarm.com board for a while. *There are a couple mutual fund 'choosers' out there. *DO NOT purchase an annuity inside a IRA, and there is no need to pay a load (front or back) to buy a quality fund.
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Re: SEP-IRA
Old 02-15-2005, 08:15 AM   #5
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Re: SEP-IRA

I, too, am self-employed.

Here is my experience.

For 2005, if your husband is going to stay solo (no employees), go with a Solo 401(k).

If he is going to bring on employees, go with the SEP-IRA.

Both allow you to max out at $41,000, but the solo allows you to get there much quicker.

Fidelity offers it directly. Vanguard does not. However, there is a solo 401(k) specialist in CA that will set you up so that you can use all the Vanguard funds. There are others, but I don't have any experience with them.

Don't forget to max out your Roth as well!
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Re: SEP-IRA
Old 02-15-2005, 08:31 AM   #6
 
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Re: SEP-IRA

My husband doesn't have ROTH.
He will never have employees.
So you are saying Solo 401K is better than SEP-IRA?
I am sorry I know nothing baout retirement plans.

THanks
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Re: SEP-IRA
Old 02-15-2005, 08:34 AM   #7
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Re: SEP-IRA

Yes, the solo 401(k) is the better vehicle.

In addition to a solo 401(k), you and your husband should open a Roth IRA, provided that your combined income isn't above $150,000. If it is, you get to open a Traditional IRA.

So, in a perfect world with regards to retirement accounts:

Your husband maxes out his 401(k) for $41,000.
You and your husband max out your Roth for $8000.
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Re: SEP-IRA
Old 02-15-2005, 10:45 AM   #8
 
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Re: SEP-IRA

You think I should open Roth IRA even thought I didn't max out my 403(b)?
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Re: SEP-IRA
Old 02-15-2005, 02:10 PM   #9
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Re: SEP-IRA

My husband and I both max out our 403(B)s, but we want to save more, so then we each max out our Roth IRAs. 403(B) is before taxes, so that should come first.
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Re: SEP-IRA
Old 02-15-2005, 05:49 PM   #10
 
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Re: SEP-IRA

Hi Maggie..

There's no easy way around this.. you need to study-up a little on the different retirement options to you and your husband before you do anything. It'll take some time but you'll be happy you did it. Good luck!

Mike
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Re: SEP-IRA
Old 02-15-2005, 06:36 PM   #11
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Re: SEP-IRA

Quote:
My husband and I both max out our 403(B)s, but we want to save more, so then we each max out our Roth IRAs. 403(B) is before taxes, so that should come first.

You didn't mention that.

So...let's try this again.

In a perfect world....

a. Your husband maxes out his solo 401(k). $41,000 to you guys.
b. You max our your 403(b). $xx,xxx to you guys.
c. You two max out your Roths. $8,000 to you guys.

Pay "Mr. and Mrs. (insert your last name here) of the Future" first.
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Re: SEP-IRA
Old 02-16-2005, 04:25 AM   #12
 
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Re: SEP-IRA

Quote:
My husband and I both max out our 403(B)s, but we want to save more, so then we each max out our Roth IRAs. 403(B) is before taxes, so that should come first.

I didn't say that. This is somebody else's statement.

Let me repeat my situation.

I have a 403(b) through my employer. I am putting 12% into it and my employer puts 9%. I didn't max it out yet. I can go up to 20% or something like that if I am not mistaken.

My husband on the other hand is self employed. He has no employees. He hasn't been saving for retirement until recently. He just went to Citizens bank and got an IRA account, without researching anything. He can only put $3000/year. I think he has done that for 3 year now. So, I came here for some advise as to what he should do with that IRA account. I was told to roll it over to SEP-IRA. Since, I don't know anything about it I started reading. And of course I am still confused. I am sorry but I am really dumb when it comes to investing. I read tons fo articles and I still don't know what I am supposed to do. Then I was told that he should look into Solo 401K. So, I read about that. I still don't know what the difference is. What is the advantage of one over the other. In either case we can't afford to max anything out. So what's the difference? The difference I read was all about how much one can contribute, but we can't contribute that much anyways, so what can we do?
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Re: SEP-IRA
Old 02-16-2005, 05:01 AM   #13
 
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Re: SEP-IRA

Give Vanguard a call. They can explain a lot what you can do or what not with a SEP IRA. My understanding is that a SEP IRA is much easier to set up and works best if you don't make a lot of money.

I will be starting a SEP IRA this year. I do have a normal job with a maxed out 401K. I will put my net earnings from my self-employment into a SEP IRA for me and hubby (will put him on the payroll or have him bill me as a contractor). The reason I want the SEP IRA is that it is relatively easy to set up and you can put up to $9000 per year in it. The $9000 is not a percentage, so if you made $9000 you can put all of it in there. Since we expect to net $18000 (after writing off lots of our personal expenses) and we don't need the extra cash this would work best for us: two SEP's with $9000 each. After two years you can roll it over into a traditional IRA if you want to. I still have to double check all of it, but this is I think how it works.

Vicky
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Re: SEP-IRA
Old 02-16-2005, 05:56 AM   #14
 
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Re: SEP-IRA

Hi vicky! I would advise against "writing off lots of our
personal expenses"; or if you do, I wouldn't be telling
people about it

JG
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Re: SEP-IRA
Old 02-16-2005, 07:59 AM   #15
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Re: SEP-IRA

Vicky,

I don't want to put you on the spot, but you are giving some bad advice.

SEP-IRA works like this: 20% of your income if you a sole-proprietor, 25% if you a corporation, up to $41,000. PERIOD.

Solo 401(k): $13,000 PLUS 25% of your income, up to $41,000.

If you make say $100,000, here's how it breaks down:

SEP-IRA = $25,000.

Solo = $13,000 + (25% of $87,000 = $21,750) = $34,750.

I learned the hard way last year.
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Re: SEP-IRA
Old 02-16-2005, 08:00 AM   #16
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Re: SEP-IRA

Maggie,

$3000 was the IRA limit in 2004.

In 2005 it is $4000. It will be $4000 from 2005-2007.

In 2008 it goes up to $5000.
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Re: SEP-IRA
Old 02-16-2005, 04:32 PM   #17
 
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Re: SEP-IRA

Quote:
Vicky,

I don't want to put you on the spot, but you are giving some bad advice.

SEP-IRA works like this: *20% of your income if you a sole-proprietor, 25% if you a corporation, up to $41,000. *PERIOD.

Solo 401(k): *$13,000 PLUS 25% of your income, up to $41,000.

If you make say $100,000, here's how it breaks down:

SEP-IRA = $25,000.

Solo = $13,000 + (25% of $87,000 = $21,750) = $34,750.

I learned the hard way last year.

Thanks for letting me know well in time! I don't want to learn it the hard way. Whoever I spoke to at Vanguard said I could put 100% in up to a certain limit. Guess I should not go with their advice. Don't listen to me either then

How easy is it to set up a solo 401K? Guess my husband will have to set up his own and bill me. If you have a normal 401K at work that is maxed out, can you still do the solo 401K on top of that (again with 13,000+25%)?

Vicky
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Re: SEP-IRA
Old 02-16-2005, 06:37 PM   #18
 
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Re: SEP-IRA

Looked around for a long time on the net on how to use a solo 401K for a side business and find a good example with some calculations. Here is one, I find it pretty good (limits have increased from the $12,000 in this example by now). Will definitely do this.

This is the link of the original article: http://www.best-affiliate-programs.c...to-the-max.php


Maximizing Your Solo 401(k): A "Side Business" Example

Bill is an employee of a corporation at which he has been contributing the maximum amount to that company's 401(k) plan (currently, $12,000). With the stock market's bear market from 2000 to 2002, he knows he either needs to contribute more toward retirement savings or get by with less income in his retirement years. (Note: Bill will probably opt to contribute more toward retirement savings since he is not a $20 million lottery winner) (To see "Case Studies," please visit http://www.marcjlane.com/Studies/casestudies.html)

Bill is also the sole shareholder of a corporation that he created five years ago for a side business. That business currently generates $40,000 of income, and since it is a side business, Bill doesn't need the income to support his family's routine expenses. If Bill establishes a solo 401(k) for the corporation, he can contribute $22,000 toward his retirement in 2003:

Salary deferral (maximum) $12,000 Employer contribution (25% of $40,000) $10,000 TOTAL solo 401(k) contributions $22,000

With these additional contributions, Bill can nearly triple the total amount he contributed to retirement plans in 2002 (i.e., $12,000 in 2002 with his primary corporate job, and $34,000 in 2003 with both his primary job and his side business). Bill will only pay income taxes on the remaining $18,000 of the $40,000 of income earned from his side business.

However, Bill can do better. If Bill's wife, Betty, is involved with the business and earns a salary of $10,000, she can contribute her full compensation as salary deferral. The total contributions for Bill and Betty would be calculated as follows:

Salary deferral (Bill) $12,000 Salary deferral (Betty) $10,000 Employer contribution - Bill (25% of $30,000) $ 7,500 Employer contribution - Betty (25% of $10,000) $ 2,500 TOTAL solo 401(k) contributions $32,000

Bill and Betty will now pay income taxes only on the remaining $8,000 (20%) of income generated from their side business and they'll avoid current income taxes on $32,000 (80%) of the business income. Combined, they will contribute $44,000 toward retirement in 2003 ($32,000 from the side business and $12,000 from Bill's primary job)!


Vicky
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Re: SEP-IRA
Old 02-17-2005, 05:40 AM   #19
 
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Re: SEP-IRA

just talked to fidelity. Apparently the above example that I found on the web is also wrong

401k contributions are subject to the 402(g) limit. So if you already have maxed out the $14,000 (or was it $13,000?) limit in your employer's plan, you can not put 100% of the first $14,000 away again in a solo 401k. Since I am already maxed out there, I could only put away 25% of my self-employment earnings in a solo 401k. That is not much.

I could do the same with less hassle in a SEP-IRA. I'd better call around a bit more or call my CPA because I get different answers from everybody. Confusing, at least I got till the end of the year.

Vicky
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Re: SEP-IRA
Old 02-20-2005, 04:32 PM   #20
 
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Re: SEP-IRA

Vicky,

I believe you're getting the SIMPLE IRA and SEP IRA confused. One allows deductions no matter the percentage; the other allows only up to 20% of self-employed income. So you CAN put up to $10,000 (for 2005) regardless of income into a SIMPLE.

Here's a table:

http://www.tdwaterhouse.com/planning...ess/index.html

You'll notice that the table lists 25% as the max. As LRAO stated, it's 20% of income for the self-employed. The 25% is for corporations.

As you can see from the table, a solo 401(k) is a combination of the SEP and SIMPLE as far as contributions go. If you want to put more then 20% into the plan, you want a SIMPLE. But if you also want to put more then $10k in, you'd want a solo 401(k).

----------
Maggie,

Your husband doesn't need to do a roll-over of his IRA. He can leave where it is if he likes the investment choices and also start a self-employed plan at wherever (Vanguard, E-Trade, etc. - I'm not recommending TD Waterhouse since I don't know what their fees are).

As for what plan, you'll have to make that decision based on what the fees are and what kind of paperwork is required. A good brokerage should do most of the work for you and give you templates for plan creation.
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