Should I buy my first home or max out my SEP IRA?

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Should I buy my first home or max out my SEP IRA?

Postby doss » Sat Mar 23, 2013 5:28 pm

HI all,
I'm 32, single, and just started a new job (in the Fall of 2012) with an employer that contributes to a SEP IRA based on 18% of my salary (not deducted from my salary). I make a tad under 6 figures.

Questions:

1.) Am I correct in understanding that the annual contribution limit is 25%? If so, does that mean that 18% (my employer's contribution) + 7% (my own contribution) = 25% ? Or is it 25% on my own contributions?

2.) I don't see myself staying at this job forever...probably just 5-7 years. Should I try to maximize the SEP IRA contributions 100% during this time or should I find a home to invest in? I just don't think I'll be staying in this city...so that means I probably won't stick with my job....and therefore I probably should not buy a home?

I also have a TSP and a Roth IRA that I occassonally contribute to, but only have 30k. I also pay 600/mo for 2ac of land in Texas with 4 more years to go at 2.5% interest.

Should I max out my SEP IRA before I focus on anything else?
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Re: Should I buy my first home or max out my SEP IRA?

Postby BL » Sat Mar 23, 2013 6:00 pm

A home is mainly a life-style rather than an investment. Especially if you don't plan to stay long, I urge you to maximize your tax-sheltered accounts instead.
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Re: Should I buy my first home or max out my SEP IRA?

Postby dhodson » Sat Mar 23, 2013 6:03 pm

2nd

Especially since change of job/move is a consideration in the next few years.
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Re: Should I buy my first home or max out my SEP IRA?

Postby doss » Sat Mar 23, 2013 6:31 pm

THank you for your feedback.
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Re: Should I buy my first home or max out my SEP IRA?

Postby doss » Sat Mar 23, 2013 6:48 pm

Sorry, does anyone know the answer to question item #1?
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Re: Should I buy my first home or max out my SEP IRA?

Postby BolderBoy » Sat Mar 23, 2013 6:58 pm

doss wrote:Questions:

1.) Am I correct in understanding that the annual contribution limit is 25%? If so, does that mean that 18% (my employer's contribution) + 7% (my own contribution) = 25% ? Or is it 25% on my own contributions?

Should I max out my SEP IRA before I focus on anything else?


I agree with the others who say you should NOT buy a house if you are planning to move anytime soon. Max out your retirement plan first and every year hereafter.

A little education: the retirement plan provided by your employer allows for two kinds of contributions - profit sharing and employee deferrals. The first is what your employer contributes (and may be subject to vesting rules); the second is what you can contribute from your salary, usually pre-tax which is GOOD. The 25% rule generally applies to what the employer can contribute as profit sharing (though your employer is going to contribute 18% it sounds like (that is VERY good!!!). Your salary deferral amount may be as high as $18000 this year (presuming you are under age 50, add $5000 more if 50+). Some employers limit the maximum amount of salary deferral you can make in a year, so ask.

HTH in your understanding...
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Re: Should I buy my first home or max out my SEP IRA?

Postby Honobob » Sat Mar 23, 2013 7:07 pm

BL wrote:A home is mainly a life-style rather than an investment.

Buying real estate is an investment. I can choose to rent a 3 bedroom 2 bath home or I can buy one. It's ALL about the numbers. "Lifestyle"?, maybe if you're living in a yurt/ger or a geodesic dome!
It's slowly dawned on me that we won the real estate lottery!
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Re: Should I buy my first home or max out my SEP IRA?

Postby doss » Sun Mar 24, 2013 12:12 pm

Recently, my employer made a contribution to my SEP IRA in the amount of $4908 on 1/31/13 (my company's first since I started this job). Today, I was looking at making a personal contribution to that SEP IRA and noticed I could only contribute $1000 for 2012. As far as I know, I had never made a personal contribution to that SEP IRA in 2012, so why am I being limited on the amount of that contribution I can make? I understand there is an IRS limitation of 25% of my salary that can be contributed to the SEP IRA (my company contributes 18%), so shouldn't I be able to contribute more than 1k to my SEP IRA?

I do have another traditional IRA that I contribute to...so I'm guessing I'm being limited in the SEP IRA due to the amount I've already socked away in this other IRA?

Thank you for any answers you can provide!
-Nick
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