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SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 5:30 am
by ricks1433
Age: 48
Business: Sole proprietor LLC with no employees
Marital Status: Married
State: CA
Spouse is stay home mom but I could probably find her a job in the biz doing office work if needed for her 401k (if that’s an option?)
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Hi All,

I'm a small business owner and this year has been fairly good for me. My SEP IRA is now maxed at $56K. I also put $7K into an HSA (will be using for retirement) and have been putting $2k per month into a taxable investment account (betterment). <--- yes I know it's probably not recommended here but I really like the autopilot of it.

I've also been paying down my mortgage (current rate is 3.75%) with an extra $2K per month. At current pay-down rate it will be paid off in 12 years.

On top of the above, I have a 6 month emergency fund established.

So my question is, are there any other pre-tax investments I can make? I'm assuming no but thought I'd ask. If I could, I'd throw $100k this year into a SEP!

I'm assuming no other tax deferred investment is available because of my income so I'm probably going to bump my monthly taxable investment up to $3k. Definitely open to other thoughts and suggestions on what I can do with my extra monthly income.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 6:51 am
by Dottie57
ricks1433 wrote:
Wed Oct 09, 2019 5:30 am
Hi All,

I'm a small business owner and this year has been fairly good for me. My SEP IRA is now maxed at $56K. I also put $7K into an HSA (will be using for retirement) and have been putting $2k per month into a taxable investment account (betterment). <--- yes I know it's probably not recommended here but I really like the autopilot of it.

I've also been paying down my mortgage (current rate is 3.75%) with an extra $2K per month. At current pay-down rate it will be paid off in 12 years.

On top of the above, I have a 6 month emergency fund established.

So my question is, are there any other pre-tax investments I can make? I'm assuming no but thought I'd ask. If I could, I'd throw $100k this year into a SEP!

I'm assuming no other tax deferred investment is available because of my income so I'm probably going to bump my monthly taxable investment up to $3k. Definitely open to other thoughts and suggestions on what I can do with my extra monthly income.
Agree that taxable is probably best. You could buy I-bonds - tax deferred earnings not pretax.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 7:07 am
by Ferdinand2014
ricks1433 wrote:
Wed Oct 09, 2019 5:30 am
Hi All,

I'm a small business owner and this year has been fairly good for me. My SEP IRA is now maxed at $56K. I also put $7K into an HSA (will be using for retirement) and have been putting $2k per month into a taxable investment account (betterment). <--- yes I know it's probably not recommended here but I really like the autopilot of it.

I've also been paying down my mortgage (current rate is 3.75%) with an extra $2K per month. At current pay-down rate it will be paid off in 12 years.

On top of the above, I have a 6 month emergency fund established.

So my question is, are there any other pre-tax investments I can make? I'm assuming no but thought I'd ask. If I could, I'd throw $100k this year into a SEP!

I'm assuming no other tax deferred investment is available because of my income so I'm probably going to bump my monthly taxable investment up to $3k. Definitely open to other thoughts and suggestions on what I can do with my extra monthly income.
Married? Spouse have option for IRA/401k/403b?

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 7:50 am
by aristotelian
Can you purchase any capital items for the business?

What kind of health insurance do you have? HSA could be an option.

You should do backdoor Roth if you aren't already.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 8:22 am
by Spirit Rider
aristotelian wrote:
Wed Oct 09, 2019 7:50 am
You should do backdoor Roth if you aren't already.
A Backdoor Roth is not practical with SEP IRA contributions of $56K.

The real question is; "why are you using a SEP IRA and not a one-participant 401k?", That would facilitate Backdoor Roths.

Do you have eligible non-(owner/spouse) employees?

What is your age?

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 9:55 am
by aristotelian
Spirit Rider wrote:
Wed Oct 09, 2019 8:22 am
aristotelian wrote:
Wed Oct 09, 2019 7:50 am
You should do backdoor Roth if you aren't already.
A Backdoor Roth is not practical with SEP IRA contributions of $56K.

The real question is; "why are you using a SEP IRA and not a one-participant 401k?", That would facilitate Backdoor Roths.

Do you have eligible non-(owner/spouse) employees?

What is your age?
Good catch. He would need to do a Solo 401k that allows rollovers. I believe Schwab can do this.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 10:21 am
by White Coat Investor
ricks1433 wrote:
Wed Oct 09, 2019 5:30 am
Hi All,

I'm a small business owner and this year has been fairly good for me. My SEP IRA is now maxed at $56K. I also put $7K into an HSA (will be using for retirement) and have been putting $2k per month into a taxable investment account (betterment). <--- yes I know it's probably not recommended here but I really like the autopilot of it.

I've also been paying down my mortgage (current rate is 3.75%) with an extra $2K per month. At current pay-down rate it will be paid off in 12 years.

On top of the above, I have a 6 month emergency fund established.

So my question is, are there any other pre-tax investments I can make? I'm assuming no but thought I'd ask. If I could, I'd throw $100k this year into a SEP!

I'm assuming no other tax deferred investment is available because of my income so I'm probably going to bump my monthly taxable investment up to $3k. Definitely open to other thoughts and suggestions on what I can do with my extra monthly income.
Assuming no employees, you probably should stop using a SEP and get an individual 401(k) so you can do a personal Backdoor Roth IRA each year. You can also do a spousal Backdoor roth IRA if married. You can also do a personal defined benefit/cash balance plan.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 3:15 pm
by ricks1433
Thanks for all the questions. I’ve updated the original post with more details about me. Not familiar with backdoor Roth.

Re: SEP is Maxed... Now what???

Posted: Wed Oct 09, 2019 3:28 pm
by zlandar
If your future income allows you to put in $100k+ away for the foreseeable future you could look into a cash balance plan. At age 48 you could put in $143k this year into the plan:

https://www.cashbalancedesign.com/resou ... on-limits/

The money is tax-deferred until the plan is dissolved (i.e. you sell your business). At that point you can roll the money into an IRA.

There are admin costs associated with the plan which are ~$10k/year. It's not as flexible as a 401k or SEP in terms of letting you change your contribution amounts so your income needs to be fairly stable. The company I work for uses Kravitz and there are other companies offering this service.