A way to defer more?

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Ugly_Bird
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A way to defer more?

Post by Ugly_Bird » Wed Mar 29, 2017 2:42 pm

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.
farjean2
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Re: A way to defer more?

Post by farjean2 » Wed Mar 29, 2017 3:53 pm

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.
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.
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Xan
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Re: A way to defer more?

Post by Xan » Wed Mar 29, 2017 4:26 pm

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.
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Re: A way to defer more?

Post by mg315 » Wed Mar 29, 2017 4:30 pm

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.
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