$40k Gift

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netcord
Posts: 1
Joined: Tue Mar 20, 2018 2:39 pm

$40k Gift

Post by netcord » Tue Mar 20, 2018 3:02 pm

I received a $40k gift and for most of it, I'd like suggestions on how to invest.

I don't have any debt and mortgage is paid off. I run a small business (sole proprietor) with revenue of about $100k and 'profit' of about $30k. I currently only have a Roth Ira with Vanguard that tracks the S&P with about $45k in it.

I know investing basics but obviously lack the knowledge that you guys have. I'm thinking along the lines of low cost index funds but am open to ideas.

I see I may be suitable for a SEP IRA but am not sure if I can use gift money for this. Sounds like it needs to be paid by my business. If I can use it, what is the max? 25% of $100k or 25% of $30k?

If I can do this SEP IRA, can I also contribute and max out my $5,500 limit to my Roth IRA?

Look forward to any sound advice and obviously if I haven't given enough info, please let me know.

longleaf
Posts: 177
Joined: Sun Nov 26, 2017 4:13 pm

Re: $40k Gift

Post by longleaf » Tue Mar 20, 2018 4:17 pm

You can post in this format:

viewtopic.php?f=1&t=6212
Frugality, indexing, time.

craimund
Posts: 69
Joined: Thu Feb 15, 2018 3:39 pm
Location: Virginia

Re: $40k Gift

Post by craimund » Tue Mar 20, 2018 4:57 pm

According to IRS (see below), for a self-employed individual, contributions to a SEP IRA are limited to 25% of your net earnings from self-employment (not including contributions for yourself), up to $55,000 (for 2018; $54,000 for 2017). Looks like your net earnings would be 30K.

https://www.irs.gov/retirement-plans/ho ... e-ira-plan

As long as your contributions do not exceed these maximums, it doesn't matter the source of the money used (i.e., gift or business profits).

You should also look into a Solo/Individual 401K. In 2018 participants in an Individual 401k can contribute up to 100% of the first $18,500 ($24,500 if age 50 or older) of W-2 compensation or net self employment income for a sole proprietorship. In addition, a profit sharing contribution can be made up to 25% of W-2 wages or 20% of net self employment income. I personally have a Solo 401K because of these higher contribution limits. You can also do a Roth contribution through the Solo 401K.

Regarding where to invest, Vanguard offers these types of retirement plans (see link below) and plenty of low cost investment options. Can't go wrong there. My solo 401K is with T. Rowe Price.

https://investor.vanguard.com/what-we-o ... idual-401k

Best of luck.
"When you ain't got nothing, you got nothing to lose"-Bob Dylan 1965. "When you think that you've lost everything, you find out you can always lose a little more"-Dylan 1997

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LadyGeek
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Re: $40k Gift

Post by LadyGeek » Wed Mar 21, 2018 12:53 pm

This thread is now in the Investing - Help with Personal Investments forum (investing help).

netcord, Welcome!
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