SEP IRA vs. SIMPLE IRA vs. Individual 401K

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Barefootgirl
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SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by Barefootgirl » Mon Feb 19, 2018 2:30 pm

Does anyone have a reference to learn about the advantages/disadvantages/differences, etc.?

I have started a small, part-time side gig as a 1099 independent contractor, one I expect will continue indefinitely.

I already have a 401K through the day job employer and a non-employee Roth that I already max out each year.

Thanks
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.

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T-Wrench
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Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by T-Wrench » Mon Feb 19, 2018 2:36 pm

https://obliviousinvestor.com/sep-vs-si ... solo-401k/ is a great resource.

If you're already maxing the day job's 401k, then you will only be able to add the employer contribution to these plans, unless you cut back on maxing the plan through your day job.

aristotelian
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Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by aristotelian » Mon Feb 19, 2018 2:39 pm

I had a similar question last year. Assuming you are maxing your employer 401k and you have good fund options in your employer plan, there is very little difference between SEP and Solo 401k.

Solo 401k would avoid having a Traditional IRA balance, which would be advantageous if there is any chance you might do Backdoor Roth in the future.

SEP would allow you to do periodic Roth conversions while you are still self employed.

Other than that, no difference.

Barefootgirl
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Joined: Tue Oct 06, 2009 7:05 pm

Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by Barefootgirl » Mon Feb 19, 2018 2:42 pm

If you're already maxing the day job's 401k, then you will only be able to add the employer contribution to these plans, unless you cut back on maxing the plan through your day job.

I am not an employee in the side gig.
How many retired people does it take to screw in a lightbulb? Only one, but he takes all day.

terran
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Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by terran » Mon Feb 19, 2018 2:51 pm

Barefootgirl wrote:
Mon Feb 19, 2018 2:42 pm
If you're already maxing the day job's 401k, then you will only be able to add the employer contribution to these plans, unless you cut back on maxing the plan through your day job.

I am not an employee in the side gig.
Yes, you are. The self employed are both employee and employer.

For example, if you have a solo 401k and sufficient self employment income you can contribute $18.5k as employEE salary deferral plus 20-25% (depending on business structure) of net income at employER profit sharing. However, the 18.5k salary deferral limit is shared across all 401k and 403b plans regardless of employer, so if you're already maxing this out at your W2 job, then you can't also contribute to your solo 401k through salary deferral, only through profit sharing (which means it has effectively the same limit as a SEP IRA).

ChinchillaWhiplash
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Location: Colorado

Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by ChinchillaWhiplash » Mon Feb 19, 2018 4:49 pm

Easier to set up SEP too. You can usually create an account online in about 5 min. Solo 401k is a matter of filling out forms and sending them in. If you get over $250K in solo, you will also have to file a 5500 form.

Spirit Rider
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Re: SEP IRA vs. SIMPLE IRA vs. Individual 401K

Post by Spirit Rider » Mon Feb 19, 2018 5:18 pm

SEP IRA pre-tax employer contributions will interfere with Backdoor Roths.

One-participant 401k pre-tax employer contributions will not interfere with Backdoor Roths and provide a location to rollover other pre-tax IRA balances to enable Backdoor Roths. If you really want to go crazy you can adopt a custom plan to allow the so-called Mega Backdoor Roth. This is after-tax contributions rolled over to a Roth IRA.

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