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My wife is a singer by training, and she has a variety of income streams:
1) W-2 employee at a local Catholic School/parish, where she sings/teaches children's choirs; 2) checks/cash fees for singing weddings/funerals; 3) 1099's from local opera company; 4) potential for more 1099's (I assume) from other opera companies/singing gigs down the road.
Her W-2 income is not incredibly high, but will increase over the next few years to somewhere around the ~10K range. Also, her other self-employment income is not incredibly high, but she probably made a little over ~10k total this year. Obviously, I know that I can put some money into an IRA on her behalf (Roth or Traditional).
However, if she's not eligible for any kind of retirement plan at her W-2 employer, what are some other options that I can employ to potentially put away more of our income, tax-deferred? Is she eligible for any kind of SEP IRA or Solo 401(k)? I've done a little bit of reading on these topics, but wanted to hear from some others on the board who may have been in similar situations.
- Posts: 84
- Joined: 16 Nov 2012
I am not an expert on this topic, and I'm assuming there will be some CPA's and financial planners to give more specifics.
In my situation, I use a SEP IRA which I rolled over from my employer's 401k plan in 2001 when I started my practice. I purposely went with the SEP IRA for ease and simplicity. Through last year, the contribution limit was $50,000 or $51,000. The other limit is no more than 25% of your net operating income can be contributed. Additionally, I knew I'd never need to borrow from it, so that was another reason I leaned toward the SEP IRA.
I'm not too familiar with the solo 401k plans. Since your question caught my attention, i did a quick Google search on "SEP IRA vs solo 401k" and you will find a great starting point in formulating a decision. However, i will be anxious to see more feedback.
I will continually stick with my SEP IRA as it's low maintenance and the annual fee is insignificant. Plus, my wife and I can EACH max out our IRA's as well (which seems counter intuitive to me, but are not complaining).
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- Joined: 7 Feb 2013
As far as her W2 income, she can certainly do a Traditional or Roth IRA. (Even if she were not employed you could fund a Spousal IRA for her if you have enough earned income to do that). As far as Self Employment income, she can contribute up to 20% of her (net SE income adjusted by 1/2 of her SE tax) into a SEP-IRA. Solo 401K is also possible and will allow you to defer more at her income level.
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- Joined: 28 Jun 2009
I believe at this income level a SIMPLE IRA might have an advantage. Limit is ~14k and she can put all of her income in up to that limit, I think.
- Posts: 600
- Joined: 6 Aug 2008
The problem with the SEP IRA is that only 25% of your wife's self-employed income would be contributable.
At this point it looks like either a solo 401k or a SIMPLE IRA would work equally well for you. I would recommend the solo 401k as it has higher contribution limits (although at 10k she shouldn't reach either limit right now).
You should also look into the costs and hassles of setting up the retirement account you choose. If your wife never reaches the contribution limits (or you just don't want to contribute the maximum) it may be better to use the SIMPLE IRA just because it involves less paperwork and hassle.
- Posts: 41
- Joined: 26 Oct 2012
The best thing for her to do probably requires a bit more info from you.
Do you file your tax return as married/joint? Is her "income" from all sources needed to support you both, or can all/most of it be put into retirement plans?
What is your marginal tax rate?
Better suggestions flow from this info.
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