Retirement Options for Self-Employed Spouse

[STM]

2017 will be my husband's first full year out of training, which means it's the first year our income will be too high for me to contribute to a Roth IRA or deductible Traditional IRA. I'm a self-employed freelance writer (1099), so I don't have any retirement options available through my employer. Last year I earned about $17,000, but I'm currently pregnant with our third child, so in 2017 I anticipate earning a little less (maybe $11,000 to $13,000). What are my best options as far as retirement accounts are concerned? Ideally, we'd like to put 100% of my income into retirement accounts, as long as there's a tax advantage.

I've read about SEP IRAs, but it looks like I can only contribute a max of 25% of my 1099 income (so about $3,750). What about a Solo 401k or a SIMPLE IRA? Would either of these be an option?

 

[Zaphod]

Solo 401k is an option and will allow a higher % of, likely all of your income to be deducted.

[jfoxcpacfp]

STM wrote:

2017 will be my husband’s first full year out of training, which means it’s the first year our income will be too high for me to contribute to a Roth IRA or deductible Traditional IRA. I’m a self-employed freelance writer (1099), so I don’t have any retirement options available through my employer. Last year I earned about $17,000, but I’m currently pregnant with our third child, so in 2017 I anticipate earning a little less (maybe $11,000 to $13,000). What are my best options as far as retirement accounts are concerned? Ideally, we’d like to put 100% of my income into retirement accounts, as long as there’s a tax advantage.

I’ve read about SEP IRAs, but it looks like I can only contribute a max of 25% of my 1099 income (so about $3,750). What about a Solo 401k or a SIMPLE IRA? Would either of these be an option?

 

Click to expand...

You can contribute $12,500 to a SIMPLE, which will probably be more than enough after business deductions. Simpler than the SOLO-k. However, if you also want to contribute to a back-door Roth, you will have to either convert the SIMPLE to a 401k by the eoy or begin with a back-door Roth.

Of course, with the SOLO-k, you will be able to roll your pre-tax TIRA's into the SOLO-k and continue to qualify for tax--free back-door Roth conversions.

The only reason to use a SEP in your situation is if you don't set up your SIMPLE or SOLO-k early enough in 2017. You have until 10-15-18 to set up and contribute to a SEP, but still limited to 25% of net profits, as you have learned. Not ideal.

[STM]

jfoxcpacfp wrote:

You can contribute $12,500 to a SIMPLE, which will probably be more than enough after business deductions. Simpler than the SOLO-k. However, if you also want to contribute to a back-door Roth, you will have to either convert the SIMPLE to a 401k by the eoy or begin with a back-door Roth. Of course, with the SOLO-k, you will be able to roll your pre-tax TIRA’s into the SOLO-k and continue to qualify for tax–free back-door Roth conversions.

Click to expand...

It seems like the SOLO-k would be preferable since it would make the IRA rollovers easier, but I need to do some more research into what's involved in setting it up since it sounds more complicated than setting up a SIMPLE. Do you know what the deadline is to setup a SOLO-k? Any specific how-tos or articles about setting up a SOLO that you'd recommend?

[jfoxcpacfp]

The deadline for setting up a SOLO-k is...today (12/31). Since today is a Saturday, you'll have to settle for a SEP for 2016 and set up the SOLO in 2017. There are several SOLO-k how-to's on this site and elsewhere. Perhaps that's one I need to add to my Doctor Dilemmas, thx for the idea.