mrbanana wrote:I run a small business and am currently the only employee. I maxed out a SEP IRA just a couple weeks ago at $51k, however now I'm having second thoughts and think I should have done an Individual 401k for the year. The contribution limits would be the same for me, but I'm thinking of adding my wife as an employee so she can participate in retirement savings through the business.
So my questions are, can I somehow transfer the SEP IRA contributions to an Individual 401k? If not, is it possible for my wife to have her own SEP IRA contribution to from the business?
One thing to keep in mind: with a SEP IRA, each employee MUST have the same percentage contributed by the employer into the account.
So, if you have $x salary and max out your y% contribution into a SEP IRA, whatever salary your wife earns from the business that year must also receive the same y% of her salary into her SEP IRA.
If you're looking to max out deductions to your retirement accounts (and you're able to put $51k away in a SEP IRA given your business income), I'd stick with that. I also have a SEP IRA for my independent contractor consulting gig, and it's a lot easier to manage, set-up and control than a solo 401k.
Just be careful of the "equal percentage contribution into each employee's SEP IRA account" requirement if your wife (or anyone else) becomes an employee.