In 2016 I had both W-2 and LLC partnership K-1 (self employed) income. I have already contributed to my IRA and thinking if there is a way to defer more using the self employed portion of the income? I thought that SEP IRA would be an option but after reading it looks confusing. Thanks!
Andrei.
A way to defer more?
Moderator: Global Moderator
Re: A way to defer more?
I had a SEP IRA when I was a self-employed consultant for about 10 years. As it was explained to me by an accountant there was essentially no limit to how much I could contribute as long as I was the only employee, which I was. It only gets complicated when you have multiple employees. I relied on the the IRS at tax filing time to confirm whether that advice was correct or not and it was never questioned so I assumed that it was.Ugly_Bird wrote:In 2016 I had both W-2 and LLC partnership K-1 (self employed) income. I have already contributed to my IRA and thinking if there is a way to defer more using the self employed portion of the income? I thought that SEP IRA would be an option but after reading it looks confusing. Thanks!
Andrei.
Re: A way to defer more?
The limit is something like 20% of the profit of the business, up to an absolute max of (currently) $52,000 or so.
I would highly recommend this option. It's a very easy way to stash away a lot.
I would highly recommend this option. It's a very easy way to stash away a lot.
Re: A way to defer more?
I'm self employed and use a SEP IRA. You can contribute roughly 20% of your income, up to $54,000 (2017 contribution limit). Here's the IRS spreadsheet to determine how much you can contribute: https://www.irs.gov/publications/p560/ch05.html
You have to subtract out your deductible part of self employment tax (1040 line 28) which is what makes it a bit confusing. I contribute monthly around 15% of net income, then when I prepare my taxes I calculate the actual max and make a final contribution. You can make contributions for the preceding year as long as you haven't filed taxes yet.
You might also look at a Solo 401(k). It also has the same limit (20% of income up to $54,000 in 2017) but you can put 100% of your income for the first $18,000. That's what we use for my wife's part-time consulting business.
You have to subtract out your deductible part of self employment tax (1040 line 28) which is what makes it a bit confusing. I contribute monthly around 15% of net income, then when I prepare my taxes I calculate the actual max and make a final contribution. You can make contributions for the preceding year as long as you haven't filed taxes yet.
You might also look at a Solo 401(k). It also has the same limit (20% of income up to $54,000 in 2017) but you can put 100% of your income for the first $18,000. That's what we use for my wife's part-time consulting business.