I just setup a meeting with my CPA to discuss retirement/investment accounts. I'm currently invested in nothing at the moment and have held on to all my liquidity all of my life.

I'm 34 years old, a small business owner, and make around $250k. He suggested a SEP IRA. Does anyone have any experience with type of IRA and think it's the right direction to go?

Aggie09Derek said:

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100% the right decision of self employed.

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Thank you. Been doing a little research and seems the only downside is I have to offer to match the same plan for all of my employees. I have all my employees setup on a 1099 pay structure, will that still apply?

I plan to max out the full $61,000 contribution limit almost immediately and every year there after, Lord willing.

You can exclude 1099 folks, but that will be up to your CPA if you can. Most CPAs I talk to don't think you can exclude them because they really aren't contract employees based on the definition of the IRS.

You can set it up that they have to work 3 of the last 5 years to get the same percentage as you.

You may want to look at a solo 401k as well, especially if there are no w-2 employees. May have the same issues as above though.

I'd look at an individual 401k for self employed. It is limited to a single employee (ie you're the only employee) if you determine your 1099 folks aren't considered an employee. I used a Sep iRA until I discovered this option last year. With a SEP IRA you can contribute up to 25% of your W2 income. So unless you are claiming all of the 250k as salary I think you're over estimating how much you can contribute. With an individual 401k you can salary sacrifice 100% of your w2 income and your employer (ie you) can contribute up to 25% of your income. Additionally you can set it up as a Roth or traditional 401k or combination of the two.

Harkrider is correct. It's called a solo 401k not individual

Superfreak said:

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I'd look at an individual 401k for self employed. It is limited to a single employee (ie you're the only employee) if you determine your 1099 folks aren't considered an employee. I used a Sep iRA until I discovered this option last year. With a SEP IRA you can contribute up to 25% of your W2 income. So unless you are claiming all of the 250k as salary I think you're over estimating how much you can contribute. With an individual 401k you can salary sacrifice 100% of your w2 income and your employer (ie you) can contribute up to 25% of your income. Additionally you can set it up as a Roth or traditional 401k or combination of the two.

Harkrider is correct. It's called a solo 401k not individual

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I pay myself a 250k salary per year. I'm not counting additional profit that I make on top of my salary. It seems the Solo 401k would be more flexible and that I could actually co tribute more than even SEP IRA. I just moved myself over to W2 employee this year after advice from my CPA. He saved me quite a lot of money that way.

The annual limits for SEP or 401k are the same. The great thing about the 401k is you can setup the salary sacrifice portion as a Roth with no income limits. Sorry if everything I'm says is not 100% accurate. It's been awhile since I set mine up. I will tell you it took a few phone calls to CPAs and investment advisors to get clear answers. Seems many are not knowledgeable on the solo 401k. I think it is a relatively new investment vehicle.

Buy yourself a few houses & rent them out. Create passive income for yourself, retire quicker than you can imagine.

SEP max is 61,000.

Correct. As is the solo 401k unless over 50. There is a 6 or 7k catchup limit for the solo.

SEP can get expensive for you if you are maxing out at $61,000. You would have to make a contribution for every eligible employee for 25% of their income since that's what you did for yourself. Not sure how many of your employees are eligible.

Solo 401k would be a better option if you don't have eligible employees for a SEP and don't plan on adding any. It may be a tad more expensive to administer but you have a Roth option and loan provisions that you don't with a SEP.

Solo K