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  • New to SEP-IRA

    For the first time I have a substantial amount of 1099 income (about 40k) in addition to my W2 jobs (200+k). Since I’m already maxing out my TSP/401k (with some matching) and my HSA which is invested as a stealth IRA, I can now invest in a SEP-IRA to (almost fully) meet my investment plan goal of a total of 40k per year in tax advantaged accounts. I’m already on a 5 year payment plan for my student loans and a 15 year plan for my mortgage. So I think I’m ready to open a SEP-IRA, but I don’t know exactly how much I can contribute. Various posts on this site have suggested “~18%” but I’m not clear on the definitive number. My social security taxes are already maxed out on the W2 jobs, but does the Medicare tax affect the amount I can contribute? And do my business deductions affect the amount? Also, where should I go to open a SEP-IRA? I would assume just go over to the Vanguard website to open one?  Thanks!

  • #2
    Is this for 2015? Presuming that is the case, recommend you max out the SEP then start a solo-k for 2016 if there are no non-spousal employees. Vanguard is fine or most any online brokerage. Your Medicare taxes and other business deductions will reduce the amount you can contribute.

    The calculators I have found remove SS tax, also, but you can calculate the amount of contribution manually here.
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Yes, it's for 2015.  Based on what I found on the IRS website, the maximum contribution for SEP-IRA is 25% of the employee's compensation.  So after my business deductions and 2.9% Medicare tax, I could contribute 25% of the remainder?  That's more than I thought.

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      • #4
        The max is 25% but it is reduced by Medicare tax in a roundabout way. That's why you need to go through the calculation to get the exact amount.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          After calculating it on my own, I went to enter in what I planned to contribute to the SEP on TurboTax to see how much it would save in this year's taxes, and there was a little box to click that automatically calculates the maximum contribution!  And doing so will save me about $2k in this year's tax bill!  I love it!

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          • #6
            That's how we do it here, too :-)

            Just think of it as Uncle Sam contributing $2,000 to your SEP.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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