Check my understanding of Roth contribution eligibility

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AntsOnTheMarch
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Check my understanding of Roth contribution eligibility

Post by AntsOnTheMarch » Sat Aug 12, 2017 7:26 am

DW and I are each 60 years old, file jointly and are well below Roth contribution income limit. We are self-employed and contribute the maximum to SEPs each year. The way I read it, we are still eligible to contribute $6,500 each to individual Roth accounts on top of whatever goes to SEPs. Am I correct?

The Wizard
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Re: Check my understanding of Roth contribution eligibility

Post by The Wizard » Sat Aug 12, 2017 8:13 am

Correct, to Roth IRAs specifically...
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AntsOnTheMarch
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Re: Check my understanding of Roth contribution eligibility

Post by AntsOnTheMarch » Sat Aug 12, 2017 9:36 am

The Wizard wrote:
Sat Aug 12, 2017 8:13 am
Correct, to Roth IRAs specifically...
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Duckie
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Re: Check my understanding of Roth contribution eligibility

Post by Duckie » Sat Aug 12, 2017 3:15 pm

The SEP IRA is an employer plan with the employer contributing via payroll. The employee makes no contributions/deferrals from payroll. But the employee is allowed to make personal contributions to the SEP IRA. However, those personal contributions are the same as what could be contributed to a Traditional IRA. It's just going into the SEP IRA instead of the TIRA. So if you make a personal contribution by check of $5.5K to your SEP IRA (and you're under 50) you can't contribute anything to a TIRA or Roth IRA for that year.

In the OP's case, they are the employers, so the contributions to the SEP IRAs are completely employer funds, not personal funds. That means they can still contribute to their personal IRAs.

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FiveK
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Re: Check my understanding of Roth contribution eligibility

Post by FiveK » Sat Aug 12, 2017 5:51 pm

Duckie wrote:
Sat Aug 12, 2017 3:15 pm
In the OP's case, they are the employers, so the contributions to the SEP IRAs are completely employer funds, not personal funds. That means they can still contribute to their personal IRAs.
Ok, thanks.

This assumes that "[w]e are self-employed and contribute the maximum to SEPs each year" implies only "employer" contributions are maximized, not "employer + employee" contributions - correct?

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Duckie
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Re: Check my understanding of Roth contribution eligibility

Post by Duckie » Sun Aug 13, 2017 3:19 pm

FiveK wrote:
Sat Aug 12, 2017 5:51 pm
This assumes that "[w]e are self-employed and contribute the maximum to SEPs each year" implies only "employer" contributions are maximized, not "employer + employee" contributions - correct?
Correct. There are no employEE contributions allowed to a SEP IRA. Any personal contribution is not an employEE contribution, it doesn't go through payroll.

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FiveK
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Re: Check my understanding of Roth contribution eligibility

Post by FiveK » Sun Aug 13, 2017 5:05 pm

Duckie wrote:
Sun Aug 13, 2017 3:19 pm
FiveK wrote:
Sat Aug 12, 2017 5:51 pm
This assumes that "[w]e are self-employed and contribute the maximum to SEPs each year" implies only "employer" contributions are maximized, not "employer + employee" contributions - correct?
Correct. There are no employEE contributions allowed to a SEP IRA. Any personal contribution is not an employEE contribution, it doesn't go through payroll.
We're getting somewhat off in the weeds here, but it's a short thread, so.... ;)

The IRS FAQ that includes "If the SEP-IRA permits non-SEP contributions" implies that employee contributions may be allowed to a SEP IRA. Is that out of date? Or are you distinguishing people themselves from their status as an employee?

user76586
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Re: Check my understanding of Roth contribution eligibility

Post by user76586 » Sun Aug 13, 2017 5:12 pm

At certain brokers, including Vanguard, you CAN make "employee" contributions to a SEP rather than maintaining a separate traditional IRA and SEP IRA. "Employee" in quotes because technically you're making both traditional and SEP contributions, but it's all combined and traded as one IRA.

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Duckie
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Re: Check my understanding of Roth contribution eligibility

Post by Duckie » Sun Aug 13, 2017 5:18 pm

FiveK wrote:
Sun Aug 13, 2017 5:05 pm
Or are you distinguishing people themselves from their status as an employee?
I am distinguishing an employee's personal contribution to the SEP IRA (which is allowed) from an employee's employEE contribution to a SEP IRA (which isn't allowed).

Although you can make a personal contribution to a SEP IRA it's better to contribute to a separate TIRA instead, mainly because of control, options, and cost.

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FiveK
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Re: Check my understanding of Roth contribution eligibility

Post by FiveK » Sun Aug 13, 2017 5:23 pm

Got it, thanks for the clarification.

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