Hi Everyone,
Been lurking on the site for the last 5 years or so, and knew there was no better place to get some advice.
Long story short is that after almost 4 years of being a pre-partner in a democratic EM group, they decided to sell (I was 5 weeks short of making partner) and cut out all 12 pre-partners. Needless to say I bitterly gave my notice and joined another group in town. During the transition period I formed an LLC and did some 1099 work. The combined salary for my wife and I was much higher in 2017 than it will be in 2018 for various reasons and I was trying to figure out a way to put as much away pre-tax as I could for 2017.
I almost maxed out our pre-tax savings from my W2 (45k) and her W2 (18k + match) income. My thought was to establish an individual 401k and contribute as an "employer" as much as I could from the 1099 income. I called and spoke with Vanguard and was told to do a SEP-IRA instead because there were more options available and I wouldn't be able to contribute as an employee anyways since I had already maxed that out with my W2 income. The thought was to contribute to the SEP as the employer.
Since then it has dawned on me that by doing so I may have screwed up my backdoor roth contribution (which I did early January 2017 and have already done my 2018 contribution). I called vanguard today to figure it out and to see if I could open a solo 401k to roll the SEP IRA money into to avoid any additional taxes. They told me that I should have never opened up a SEP or even a solo 401k because I would not be able to contribute anything to it since I maxed out my W2 employee contribution. I knew there was a max on 401k employee contributions by SSN but thought that an employer contribution was separate.
Now I am thoroughly confused and unsure of what the best thing to do would be. I'd like to minimize my tax bill as much as possible while maximizing pretax savings both in 2017 and 2018. In case numbers would help, my 1099 income was about 35k and our combined income for 2017 was 675k. The only debt we have is our house as we finally paid off our 514k in student loans in December (!!).
Sorry for the long post. Any thoughts or help would be greatly appreciated.
Been lurking on the site for the last 5 years or so, and knew there was no better place to get some advice.
Long story short is that after almost 4 years of being a pre-partner in a democratic EM group, they decided to sell (I was 5 weeks short of making partner) and cut out all 12 pre-partners. Needless to say I bitterly gave my notice and joined another group in town. During the transition period I formed an LLC and did some 1099 work. The combined salary for my wife and I was much higher in 2017 than it will be in 2018 for various reasons and I was trying to figure out a way to put as much away pre-tax as I could for 2017.
I almost maxed out our pre-tax savings from my W2 (45k) and her W2 (18k + match) income. My thought was to establish an individual 401k and contribute as an "employer" as much as I could from the 1099 income. I called and spoke with Vanguard and was told to do a SEP-IRA instead because there were more options available and I wouldn't be able to contribute as an employee anyways since I had already maxed that out with my W2 income. The thought was to contribute to the SEP as the employer.
Since then it has dawned on me that by doing so I may have screwed up my backdoor roth contribution (which I did early January 2017 and have already done my 2018 contribution). I called vanguard today to figure it out and to see if I could open a solo 401k to roll the SEP IRA money into to avoid any additional taxes. They told me that I should have never opened up a SEP or even a solo 401k because I would not be able to contribute anything to it since I maxed out my W2 employee contribution. I knew there was a max on 401k employee contributions by SSN but thought that an employer contribution was separate.
Now I am thoroughly confused and unsure of what the best thing to do would be. I'd like to minimize my tax bill as much as possible while maximizing pretax savings both in 2017 and 2018. In case numbers would help, my 1099 income was about 35k and our combined income for 2017 was 675k. The only debt we have is our house as we finally paid off our 514k in student loans in December (!!).
Sorry for the long post. Any thoughts or help would be greatly appreciated.
Comment