Possible to do 'em all?: 457 403b, SEP-IRA, and Solo 401-K

[erichte]

Alright so interesting events occurred in my life resulting in me having opportunity to contribute to multiple retirement plans. My employed status is below. What I am asking is how/what should I be contributing to and how much?

Employment statuses with various contributions:

Jan 2017-June '17: w2 employed

-457b: $17,950

-403b: $4,500

So I knew I relocating and getting a new job with 1099 status. So I maxed out 457 as quick as I could knowing that it would not be available at new position. Unfortunately I could not max out both this time frame...paying 12k a month on student loans (sigh).

 

July '17-Sep'17: 1099 IC

new job started in July as an IC 1099 so was planning on contributing to SEP-IRA (have not yet b/c unsure what to do now). Initially I was going to max out the SEP for the remaining year.....but then my hospital got bought out 2 weeks after I signed (ughhh). This led to a re-negotiation of our group in the ED. Unfortunately, they did not win bid and the new group will be K-1. My 1099 pay for 2 months will be about 60k.

So my question is what the heck can and where can I contribute? My original plan was to max out sep-ira with new job. Now I'm thinking of contributing 25% of the 60k for my 2 months as IC 1099 and then maxing out solo 401-k for remaining year when new group takes over. Can this be done? Are there max contributions between sep, solo401k and 403b combined? I've looked everywhere online and can't seem to find a good answer. Oy...doing W2, 1099, and k-1 all in one tax year is not fun.

Thanks!

 

[jfoxcpacfp]

Not sure why you wanted to go the SEP route with your new job as opposed to solo-k. You have an additional $13,500 of employee deferral space in your 1099 income job + 20% of net profits. I'd set up a SOLO-k and contribute that amount to it and, if allowed, r/o your 457b to it. You will have to set up the solo-k by 12/31/17. This will allow you to make a backdoor Roth IRA contribution/conversion.

This recommendation might change if you are eligible for matching contributions in your first year at the new company - important to know. If you find out that you are and you have already maxed out the solo-k, you can overcontribute to the new 401k and ask for a refund of overcontribution from the least lucrative plan before 4/15/17. Crazy that you'll have 3 to choose from.

[spiritrider]

It is a rather complex mix. Here are the relevant issues/limits.

There is one $18K employee limit across all SIMPLE IRA, 401k and 403b plans.

There is one $54K annual addition limit for each unrelated employer. 403b is considered controlled by the participant and must be aggregated with all plans of businesses own by the participant.

There is a separate $18K contribution limit all 457 plans.

If you are paid on a K-1 in the latest job, they are the employer. Any retirement plan must be sponsored by them. You can not adopt a one-participant 401k plan for this income.

You currently have ~= $18K in 457 contriutions. That virtually completes that space.

The $4500 in 403b deferral uses up both employee deferral space and annual addition space.

What to do with the 1099 income depends on what type of retirement plan and what type of business entity the latest job is.

It is probably certain that a one participant 401k is the best option. At a minimum you will be able to make an employer contribution of 20% net self-employment income (net business profit - 1/2 SE tax) for a sole proprietor.

If the new employer has a 401k with an employer match you will want to make employee deferrals at least up to that match. Subject to the employee deferral limit. If instead they have a profit sharing plan that maybe would be the preferred option. Then you would instead take the remainder of the employee deferral limit in the one-participant 401k plan.

You need to provide the details of the employer's business entity and retirement plan.

[erichte]

Thank you for the reply jfox! I guess I was going to use a sep-ira initially b/c 2 years ago I was 1099 and already had a Vanguard sep-ira set up so was going to continue to use that. What you say makes sense though using a solo-k instead for additional deferral. My understanding is there are no matching contributions, but final details of contract being stamped out still. So it sounds like I should just eliminate adding any money in the sep-ira and open a solo instead and max out and do the backdoor (one of my goals this year is to do that!). from what I've read it looks like the 457b doesn't count towards my max contribution amount and the 403b (4.5k) I have can be treated separate than the solo-401 k, thus allowing max contribution to the solo.

[jfoxcpacfp]

erichte wrote:

! I guess I was going to use a sep-ira initially b/c 2 years ago I was 1099 and already had a Vanguard sep-ira set up so was going to continue to use that.

Click to expand...

You'll need to roll the old SEP into the solo-k by 12/31 of the year you convert to the backdoor Roth to avoid taxes. I think spiritrider gave about the same advice then some, but much more elegantly - be sure to digest everything s/he said.

[erichte]

This all makes much more sense to me! thanks jfox and spiritrider! I definitely need to find out what type of 401k and matching the company does. We have a meeting on Wednesday for all the details.

[adventure]

You could skip some paper work, and just throw it at the student loans. More of a snowball theory here, than a long term math/spreadsheet answer.

Then you can line up 2018. Just a thought.

[erichte]

Yes, I did think of doing this. When looking at my tax brackets for 2017 though I need to stash away at least 25k more to drop a bracket. The rest I will be putting towards loans. Right now (after consolidating) me and my wife (a physical therapist) are at 360k mark (me 251k and wife 118K) in student debt. Our min payments are 8k a month so I'm putting an extra 4-5k a month on loans. 2.5 years ago we started with 704K!!! Those 2.5 years we were really hammering our loans. I currently have about 50k in various stocks that I will be selling and putting towards wife's loan. Then I plan on taking all extra cash flow for 6-8 months to eliminate her loan which will free up 2700 a month to add to mine. Our ultimate goal is 2 yrs to be done completely.

When I first got out of residency I was kind of naive about our student loans. We were enrolled in IBR, but then took jobs where it did not qualify. Also, did the math and the IBR was not going to save us much with our large loan balance and pay off terms they need. Our initial interest was averaged to be 6.8% So I kept re-consolidating (first Charter one: 4.5%, then lendkey 4%, then earnest 3.6, and lastly sofi 3.375. All fixed 5yrs). Lots of paperwork to re-consolidate, but every point helps!!! My first year out in 2014 I was so focused on retirement planning and investing and not so much on loans. I wised up and realized both can be done and can get the tax advantages. We have accumulated 220K in retirement accounts thus far. In retrospect I kind of wish we just threw it all at loans, but then I also think of the tax advantages and getting money in market earlier are a plus. I guess both have their advantages. Now our goal is to max out retirement accounts each year and throw rest at loans...a happy medium for us.

We relocated to Chicago from Cleveland to be back near our family. So these two months have been a little difficult adjusting to higher COL and going without a check for 2.5 months. We are finally back on track. Other than our loans we just have our mortgage. Car paid for in cash and credit card balance zero each month. No fancy trips etc.....would not have done any of that without reading @whitecoatinvestor blog (wish I knew about it in residency). We also wanted to rent in Chicago, but have two wonderful dogs (one is a pitbull so not accepted by most places) and so rentals are essentially impossible unless willing to pay 5k a month or live in not so safe a place.

 

All I know is the day my loan balance is zero I will probably run around Chicago streets naked and delirious haha.

 

Welp. That was a verrrry long reply to your post @adveture, but it felt good to write about it and think of why we are doing what we do.

[adventure]

erichte wrote:

Right now (after consolidating) me and my wife (a physical therapist) are at 360k mark (me 251k and wife 118K) in student debt. Our min payments are 8k a month so I’m putting an extra 4-5k a month on loans. 2.5 years ago we started with 704K!!!

Click to expand...

Whoa!! 704-360 = 344 in 2.5 years! That's 11.5k/month in debt reduction - that's huge.

[erichte]

Ya adventure we are stoked to see total halved! We were hammering about 14-15k a month for 2 years straight. Hated that a lot went to interest, but still great to pay off 11.5k a month in principle!!! We have had to scale back to a total of 12k now since new job was a bit of a pay cut and new city has higher COL. Still plugging along though.