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  • SEP vs Personal IRA

    I am a 51 yr old employed physician. I already max out employee 401 (18k plus 6k catch up), employer matches about 3K. Recently lost profit sharing plan (was 20-25k per year) as harder times , partner illness, have led to decreased profits. I have trad IRA w/125 K and my nonworking spouse has 30k in trad IRA from former employer, so I have not been able to do backdoor Roth. I have 10-15 k per year in 1099 income from legal/consulting work. What can I do to increase retirement saving, SEP ? Personal IRA? How much can I put in?   I don't foresee converting the trad IRA because of the taxes and the increased reportable income might screw up federal student loan/FSA issues with 2 kids in college.

  • #2
    What you can do is open a solo 401k and roll your traditional IRA into it, as well as contribute ~20% of your 1099 income into it.  Vanguard won't do because it does not allow incoming rollovers, but others (Fidelity, Schwab, etc) might allow incoming rollovers so that would be a viable choice.
    Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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    • #3




      I am a 51 yr old employed physician. I already max out employee 401 (18k plus 6k catch up), employer matches about 3K. Recently lost profit sharing plan (was 20-25k per year) as harder times , partner illness, have led to decreased profits. I have trad IRA w/125 K and my nonworking spouse has 30k in trad IRA from former employer, so I have not been able to do backdoor Roth. I have 10-15 k per year in 1099 income from legal/consulting work. What can I do to increase retirement saving, SEP ? Personal IRA? How much can I put in?   I don’t foresee converting the trad IRA because of the taxes and the increased reportable income might screw up federal student loan/FSA issues with 2 kids in college.
      Click to expand...


      drblarney, Sorry for the rough patch you're going through. I hope this year will be better for you and your partner.

      • Set up a SOLO 401k for your SE income and roll your TIRA of $125k into it.

      • Hire your spouse to do administration (bookkeeping, filing, scheduling) for your consulting biz and add her to the SOLOk, then roll her TIRA of $30k into it. These will be 2016 transactions as the last day of the tax year for setting up a 401k is 12/31.

      • For 2015, you can set up and fund a SEP from your SE income and then roll that into the SOLOk.

      • Go ahead and contribute to TIRAs for 2015. They will be nondeductible and you can wait until your SOLO-k's are started and everything rolled in, then convert the nondeductible TIRAs in 2016 (the back-door Roth maneuver can straddle 2 or more years).

      • There will be no tax bill on any of the above. You might want to work with a CPA or CFP for calculating any contribution for 2016, or just put in a minimum amount to open and then roll from your TIRAs.

      • After you've moved your TIRAs into the SOLO-k's, then you can start your back-door Roth strategy.

      • Another idea is that you might want to set up a home office for your spouse's admin activities and deduct those expenses.

      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        Besides simplification by reducing the total number of accounts in ones portfolio, what is the advantage of rolling the tIRA into the SOLO 401?

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        • #5




          Besides simplification by reducing the total number of accounts in ones portfolio, what is the advantage of rolling the tIRA into the SOLO 401?
          Click to expand...


          This is primarily to allow you to do 'backdoor' Roth contributions.
          Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

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          • #6


            Besides simplification by reducing the total number of accounts in ones portfolio, what is the advantage of rolling the tIRA into the SOLO 401?
            Click to expand...


            coldsteel - If you have any pre-tax IRAs in your name, you will pay taxes on a proportionate amount of pre-tax IRAs to after-tax IRAs when you do a back-door Roth conversion. That would mean you are paying taxes on dollars that you didn't deduct, which is a kind of double taxation.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              In adding wife as an employee, what is involved in adding her to soloRA?  Does she get her own account within the solo?

              I set up a separate EIN/TIN for the 1099 income. Some of my 1099 comes from my practice and they wpant to keep it linked to my SSN. Can that income still be part of the sole propriotorship?

              What else does she need besides the employee agreement to be considered employee?  I would need to do payroll taxes for her?

              thanks for the great advice

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              • #8
                Do you mean Solo 401k?  Yes, if you have a basic solo 401k account, your wife would get her own.  Yes, you will have to pay payroll taxes.  You'll need to sort the details out with your CPA.  Too many moving parts here to get an accurate answer for you.  You might want to create a job description for her.
                Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                Comment


                • #9




                  In adding wife as an employee, what is involved in adding her to soloRA?  Does she get her own account within the solo?

                  I set up a separate EIN/TIN for the 1099 income. Some of my 1099 comes from my practice and they wpant to keep it linked to my SSN. Can that income still be part of the sole propriotorship?

                  What else does she need besides the employee agreement to be considered employee?  I would need to do payroll taxes for her?

                  thanks for the great advice
                  Click to expand...


                  Unless she is a partner with you, she will be an employee with all related required payroll tax filings, including unemployment. Depending on your state, maybe workmen's comp premiums. Since your SE income is minimal, and you have already used your elective contribution space at work, this would probably be the best option as she can make elective contributions to 401k of up to $18k and wipe out the state/fed taxes on your SE income. Beyond that, see the list I posted in my reply above.

                  I just re-read your OP and saw you asked, "What can I do to increase retirement saving...?" It sounds as if this might be more of a cash flow rather than tax-deferral problem. At age 51, unless you have a considerable balance in your Profit Sharing plan ($1M+), you might be well-advised to take a step back and re-evaluate your spending and saving plans and whether you can save more than you are currently doing, whether in a taxable or tax-deferred account.

                  I realize there is a lot I don't know about your situation, particularly your cost of living and your future plans, so my comment may be irrelevant. If not, some financial planning may be in order, particularly with 2 in college (yikes).
                  Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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                  • #10
                    Is it possible and would it make sense to set this up as a "qualified joint venture", so as to avoid the payroll tax issues? As described here:my wife does the scheduling, typing, mailing, etc

                    https://thefinancebuff.com/solo-401k-self-employment.html

                    thanks

                    Comment


                    • #11




                      Is it possible and would it make sense to set this up as a “qualified joint venture”, so as to avoid the payroll tax issues? As described here:my wife does the scheduling, typing, mailing, etc

                      https://thefinancebuff.com/solo-401k-self-employment.html

                      thanks
                      Click to expand...


                      You wouldn't have payroll tax filings with a partnership, either. The purpose of the LLC is to afford personal liability protection for activities conducted by the business. imo, it would be easier to administer a partnership than a qualified JV as you would be dealing with 2 sets of records with the JV. Yes, you would have to file a separate partnership tax return, but it shouldn't cost much more for preparation than filing 2 schedule C's with your 1040.
                      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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