full-time employment & business on the side

[SingleMomDreamer]

I started a sole proprietorship last year, while continuing to work full-time. Right now it's been helpful for the tax deductions as it won't turn a profit until next year, at best. But once it does turn a profit, I am uncertain as to whether I can open a personal IRA. Here's the issue. Let's say I max out my 403(b) at my place of employment. Is that it or is there I way I can contribute beyond the govt. 401(k)/403(b) max levels with the business income? Any suggestions on how to best invest business income for retirement while working and benefiting from full-time employment and their retirement plans?

 

[Kwirk]

I'm not very knowledgeable about 403(b) plans but if you were maxing out a 401(k) my understanding is that you would not be able to make employee contributions to a business-related retirement plan. However, you could make employer contributions to a retirement plan like an SEP IRA.

You might also be able to make contributions to a personal IRA though this might need to be on an after-tax basis.

 

[youbet]

But once it does turn a profit, I am uncertain as to whether I can open a personal IRA. Here's the issue. Let's say I max out my 403(b) at my place of employment. Is that it or is there I way I can contribute beyond the govt. 401(k)/403(b) max levels with the business income?

You can contribute to an IRA irregardless of the business. Max out your 403b, then also open and contribute to an IRA. Your 403b does not disqualify you for an IRA, although it will impact its deductability.

 

[GoodSense]

If you're under the income limit for a traditional IRA, I believe you can still contribute to it even when you fully funded your 403b.

Also, as a sole proprietor, I believe you can also do a SEP-IRA, like Kwirk suggested, only that this time you would be the employER contributing to your employEE's (which is also you) retirement plan. I haven't done it myself, but when I talked with my 457b (very similar to 403b) advisor at ING that's what he told me. There are limits to how much you can contribute through the SEP-IRA program, depending on your earning during the year.

I seem to remember the total maximum tax-deferred amount per person per year is something $45K. Since I never ever got close to that, I don't remember the exact amount. Irs.gov has some good publications--check it out if you can endure the bureaucratic writing style.

 

[eridanus]

As a sole proprietorship, you, the employER, can contribute up to 20% of your earnings into a solo 401k or SEP. The maximum total contribution is indeed $45,000 for 2007.

Fidelity Investments: Site Search

^pick the "SEP IRA, SIMPLE IRA, and other 401(k) Retirement Plans Compared" link.


(Verify it at irs.gov, but the "25% of compensation" is for corporations.)

 

[taramj22]

I was always told to max out my ROTH IRA and then whatever I have left should go in my 403(b).

Why the suggestion to max the 403b first

 

[FinanceDude]

I was always told to max out my ROTH IRA and then whatever I have left should go in my 403(b).

Why the suggestion to max the 403b first

Does the 403B have a match?

 

[taramj22]

No there is no match to it.

I do know that with a 403B or 401K - you should max that out up to the amount you can get in free company match - but most companies only match up to 2-4% or so -- you can max out a 403B or 401K contribution at like 10 or 20% of you paycheck.

I would only match up to the amount you can get matched by your employer, then max out the rest on a ROTH IRA.

Anything you have left that you figure you can invest you should either tack on to your 403B or check out other investment options to diversify even more. That is just advise that has been given to me.

Any reason why "not" to do it like this....benefits??

 

[Bill T]

I was a Police Officer, that had a twenty year retirement that includes health Insurance and an annuel cost of living. I started a part time business (12) years before I retired as a Police Officer at the age of 41. I worked my ass off and then the business took off to One Mill. I sold the company to a National company in 08/06. I did well on the sale but where I really did well is I sold my commerical properties where I operated my business from that I had bought at an auction in 1992 when the real estate market was real bad. I sold them (15) years later, I got top dollor for them plus I did carry back financing @ 8% for (30) years that will ballon in (10) years. I also got 20% down on the deal. I'm now living on an Island in the Florida Keys and loving life. I just turned 56. I can't believe all this good stuff happend to me as I grew up with very little.