SEP IRA for 2017 question
SEP IRA for 2017 question
Here's my situation: most of my income was W2 on 2017. I maximized my employer 401k, and also did a backdoor ROTH for 2017. I did get 1099 income on a side job. My question is, can I still open a SEP IRA for my 2017 1099 income at this point, even if I did a backdoor Roth that year? This year, I'm leaving my W2 job and going full 1099, so my plan for 2018 would be to open a solo 401k, and then would roll my 2017 SEP IRA into that solo 401K. I also already did a backdoor ROTH for 2018. Any advice would be appreciated.
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Re: SEP IRA for 2017 question
just open a solo 401k to begin with.
Re: SEP IRA for 2017 question
Generally you can open and fund a SEP up until the due date of your tax return + extensions. (~Oct 15, 2018). Contribution limit would 20% of net profit adjusted by 1/2 of SE tax. Backdoor Roth makes no difference.J_Markov wrote: ↑Tue Jan 09, 2018 10:34 am Here's my situation: most of my income was W2 on 2017. I maximized my employer 401k, and also did a backdoor ROTH for 2017. I did get 1099 income on a side job. My question is, can I still open a SEP IRA for my 2017 1099 income at this point, even if I did a backdoor Roth that year? This year, I'm leaving my W2 job and going full 1099, so my plan for 2018 would be to open a solo 401k, and then would roll my 2017 SEP IRA into that solo 401K. I also already did a backdoor ROTH for 2018. Any advice would be appreciated.
- Earl Lemongrab
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Re: SEP IRA for 2017 question
Too late for 2017 income.
Re: SEP IRA for 2017 question
Thank you. Does that rule also apply if I'm getting the income through an LLC (taxed as S-corp)?
- Earl Lemongrab
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Re: SEP IRA for 2017 question
The SEP will cause a problem with the 2017 "backdoor" due to the pro-rata rule. You could recharacterize the conversion. Then this year open a solo 401(k), roll the SEP in, and convert the TIRA again (you'd have to wait 30 days after recharactization). You might as well do your 2018 contribution right before the conversion.
Re: SEP IRA for 2017 question
Re: SEP IRA for 2017 question
[/quote]So you're a independent contractor to the S-Corp and not an or employee paid on a W2 or shareholder? No K-1?
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Sorry for the confusion. I started an LLC last year (which I needed to pursue my side business). I'm the sole proprietor.
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Sorry for the confusion. I started an LLC last year (which I needed to pursue my side business). I'm the sole proprietor.
Re: SEP IRA for 2017 question
Yes you can do a SEP as a sole prop with an LLC.
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Re: SEP IRA for 2017 question
The OP did not make a SEP IRA contribution in 2017. A 2018 SEP IRA contribution for the 2017 tax year does not cause a 2017 pro rata problem for a 2017 Roth conversion. Form 8606 uses the actual pre-tax balances on 12/31/17.Earl Lemongrab wrote: ↑Tue Jan 09, 2018 2:18 pm The SEP will cause a problem with the 2017 "backdoor" due to the pro-rata rule.
- Earl Lemongrab
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Re: SEP IRA for 2017 question
Ok. That's a wrinkle in the law that I didn't know.Spirit Rider wrote: ↑Tue Jan 09, 2018 3:41 pmThe OP did not make a SEP IRA contribution in 2017. A 2018 SEP IRA contribution for the 2017 tax year does not cause a 2017 pro rata problem for a 2017 Roth conversion. Form 8606 uses the actual pre-tax balances on 12/31/17.Earl Lemongrab wrote: ↑Tue Jan 09, 2018 2:18 pm The SEP will cause a problem with the 2017 "backdoor" due to the pro-rata rule.
Re: SEP IRA for 2017 question
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Re: SEP IRA for 2017 question
You have to do that in the current tax year, I believe. So 2017 is gone. OPer could do it for 2018 forward...
- Earl Lemongrab
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Re: SEP IRA for 2017 question
Correct. Unless the i401(k) is already open, it's not possible to make an contriutions for 2017. SEP would be the only option, so one could put employer contributions in still. Then open a 401(k) for 2018 and roll in the SEP (don't use Vanguard for the 401(k)).tesuzuki2002 wrote: ↑Thu Feb 22, 2018 3:39 pmYou have to do that in the current tax year, I believe. So 2017 is gone. OPer could do it for 2018 forward...
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Re: SEP IRA for 2017 question
Doing all of that this week!!!Earl Lemongrab wrote: ↑Thu Feb 22, 2018 4:53 pmCorrect. Unless the i401(k) is already open, it's not possible to make an contriutions for 2017. SEP would be the only option, so one could put employer contributions in still. Then open a 401(k) for 2018 and roll in the SEP (don't use Vanguard for the 401(k)).tesuzuki2002 wrote: ↑Thu Feb 22, 2018 3:39 pmYou have to do that in the current tax year, I believe. So 2017 is gone. OPer could do it for 2018 forward...
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Re: SEP IRA for 2017 question
Important to follow this last piece of advice. In case it isn't clear, Vanguard does not allow rollover contributions.tesuzuki2002 wrote: ↑Sat Feb 24, 2018 10:19 amDoing all of that this week!!!Earl Lemongrab wrote: ↑Thu Feb 22, 2018 4:53 pm Then open a 401(k) for 2018 and roll in the SEP (don't use Vanguard for the 401(k)).
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Re: SEP IRA for 2017 question
Spirit Rider is correct. Form 8606 IRA basis depends on the year the contribution was actually made, not what the tax year the contribution was for.
As others have stated there are two options to get your IRA basis back down to zero:
1. Move the money into a 401K (a solo 401K or phone your employer 401K to see if they take IRA transfers). This allows higher asset protection.
2. Mega Roth IRA. Convert the SEP money into a Roth. Depends on what tax bracket you're in, what percent of your current 401K is in Roth vs traditional.
As others have stated there are two options to get your IRA basis back down to zero:
1. Move the money into a 401K (a solo 401K or phone your employer 401K to see if they take IRA transfers). This allows higher asset protection.
2. Mega Roth IRA. Convert the SEP money into a Roth. Depends on what tax bracket you're in, what percent of your current 401K is in Roth vs traditional.