Saturday, March 22, 2008

Self-employed retirement plan

Now that I am out on my own again, I need to set up some sort of retirement plan. I already have several Roth Rollover IRA accounts that I could make IRA contributions to, but I would like to get a formal plan set up to contribute more than $5,000 or $6,000 this year. Without going overboard, I could simply set up a SEP-IRA or a Self-employed 401(k) plan. The latter allows me to contribute more, but also requires annual paperwork filing.

If I understand the rules properly, if my compensation was $60,000 (working part-time), with a SEP-IRA I could contribute up to 25% or $15,000, but with a self-employed 401(k) I could contribute that same 25% plus another $15,500 plus another $5,000 catch-up contribution since I am over 50 or a total of $35,500.

Ah... I now read that your only have to file the annual IRS Form 5500 for a self-employed 401(k) after your plan assets exceed $250,000. Excellent.

And, I think I can still make a $5,000 or $6,000 IRA contribution as well. Have to check on that though.

One lingering question is whether either plan can be Roth, or whether it is all pre-tax money and I would be deferring income taxes.

 -- Jack Krupansky

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