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SEP IRA protection when licensed in multiple states

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  • SEP IRA protection when licensed in multiple states

    Hello all,
    Long time lurker posting for the first time.

    I currently have a SEP-IRA and the state I reside in is favorable in terms of protection from creditors. However, I’m a teleradiologist and licensed in multiple states. If I run into an issue in another state where creditor protection is needed does the state of residence or the state where I’m licensed generally dictate IRA protection in this case?

    I do have a 401K I could roll things over to but the plan is a bit of a stinker.

    Thank you in advance!

  • #2
    This is probably a question for an attorney and is also state-dependent. Welcome to the forum!

    ps - why a SEP instead of a solo-k?
    Our passion is protecting clients and others from predatory advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Good question about the SEP instead of the solo 401k. I’m not sure to be honest. I was following the advice of my CPA who had set up a LLC/S-Corp back when I was an independent contractor (had about a 10 year run with that).

      I opted to become an employee last year because I grew weary of dealing with the LLC. I don’t miss it one bit (and my earnings trend was making it less and less beneficial anyway).

      I suppose I will need to get a lawyer’s input on my original question.

      Comment


      • #4
        I fully agree with jfoxcpacfp's advice. This is especially true with regard to the details.

        I don't remember the details, but there are a number of states where court precedence has left a Catch-22 kind of situation where SEP IRAs are not ERISA plans and because they are not they receive no state level creditor protection either.

        Only competent legal advice can help you navigate that minefield. Not an internet forum.

        If you are now an employee, are you eligible to participate in an ERISA qualified 401k or only some 403b plan. If so it would make the most sense to rollover to that plan if it accepts IRA rollovers.

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        • #5
          No minefield yet (knock on wood!).

          I’m in Washington state (on the “good” list) but licensed elsewhere as well. Sounds like I need to know the details for each state where I hold a license rather than rely on my state of residence.

          I have access to a 401k as an employee but I’d prefer not to use it if the state protection is sufficient.

          I’ll touch base with a lawyer. Thank you to you both for the advice!

          Comment


          • #6
            Originally posted by jaybowl View Post
            I have access to a 401k as an employee but I’d prefer not to use it if the state protection is sufficient.
            Why?

            As a whitecoat, you are almost certainly above the income limit to make direct Roth IRA contributions.

            Any non-trivial pre-tax balance in all traditional, SEP and SIMPLE IRA accounts will interfere with the Backdoor Roth.

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            • #7
              I’m definitely factoring that in and trying to decide if the benefit of the back door Roth and better asset protection outweighs the drag of the 401k expense (.28%) and suboptimal fund choices.

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              • #8
                Originally posted by jaybowl View Post
                I’m definitely factoring that in and trying to decide if the benefit of the back door Roth and better asset protection outweighs the drag of the 401k expense (.28%) and suboptimal fund choices.
                No question....

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                • #9
                  jfoxcpacfp's earlier question about a one-participant 401k becomes more relevant.

                  It is also not an ERISA qualified plan as are all owner/spouse only plans. However, there are a very small number of states without unlimited creditor protection for one-participant 401k plans.

                  Don't ask me the precise number or location, I don't remember, I just saw it in passing a few years ago to note there was the possibility that a one-participant 401k may not have state creditor protection.

                  At least you would have low cost investments and be able to rollover your SEP IRA (except at Vanguard) to enable tax efficient Backdoor Roths.

                  Comment


                  • #10
                    Good malpractice insurance and personal umbrellas mitigate the risk.

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