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SEP IRA

Started by rtysmith, September 11, 2018, 10:07:40 AM

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rtysmith

Has anyone employed a SEP IRA to max tax efficiency?

Sam

Quote from: rtysmith on September 11, 2018, 10:07:40 AM
Has anyone employed a SEP IRA to max tax efficiency?

Yep! My wife and I have a SEP IRA for our online business. We contribute 25% of compensation. Determining compensation is a different matter.

Here's a interesting post how you can potentially save $100K+ pre tax : https://www.financialsamurai.com/how-to-save-more-than-100000-a-year-pre-tax-open-a-sep-ira-or-solo-401k/
Regards,

Sam

EricNJ

Here. It's one of your key ways to lower taxable income while also saving for retirement.

defomcduff

#3
Quote from: rtysmith on September 11, 2018, 10:07:40 AM
Has anyone employed a SEP IRA to max tax efficiency?

Yes, my partner and I use a SEP IRA to max out (as best we can) the max contribution ($54,000 per year).  The only tricky part is when you hire employees, you have to (I am told) give them the same % deal after a certain period of time.  So if you can keep solo, you can really take advantage of the SEP better than if you're growing a company.

Definitely, definitely, definitely worth looking into further for your situation.
DeForest
Boston, Massachusetts

jekamom

We did a SEP for a number of years, and filled our bucket to  the point that we were satisfied for ourselves. We did get tired of our employees pulling the money out right away since they were vested and it just looked like a windfall/gimme to them, so we eventually moved to a 401k with a generous match so they'd have skin in the game and now they can't get our employer contributions out until they leave our employment.  Because  jekadad is an employee of the S Corp, and of catch up age, he can contribute a good bit in the 401k with a company match. (His contributions tend to be Roth)  On years I take a small salary, I do pretax only, since I have a roth already.   

rtysmith

I was just with my Tax Attorney, and he said he is using SEP at his office but all his employee's are "leased" to the LLC, so he does not have to include them in the SEP - anyone done that?

Sam

Quote from: rtysmith on September 12, 2018, 09:23:37 AM
I was just with my Tax Attorney, and he said he is using SEP at his office but all his employee's are "leased" to the LLC, so he does not have to include them in the SEP - anyone done that?

Sounds like he is just using freelancers/Contractors to do work. That's normal and fine. I hire freelancers to do some technical work on the side all the time. I don't have to pay them a SEP IRA.
Regards,

Sam

jekamom

 was just with my Tax Attorney, and he said he is using SEP at his office but all his employee's are "leased" to the LLC, so he does not have to include them in the SEP - anyone done that?

Just so your tax attorney is actually leasing his employees. If he should be including him in the SEP, I'd have real concerns about his integrity as an advisor. 

The question is what is the INTENT of the IRS rules on this matter.  It is  to protect those who should be included in a SEP.  What is the tax attorney's intent? If to save his money (avoid tax) then the IRS won't look kindly...

rtysmith

My Tax Attorney is doing the same.

I think he said it only works if your an LLC (not Inc.).

Jbinjville

I'm still new to this website but I've learned a few things that are going to help me out this tax year.  I'm the largest shareholder out of 6 in an S corp and up until this year we did the SEP but we switched to 401K now, which is going to better for us.  We do have employees and yes you do have to match the percentage of income for qualified employees, even if they leave midyear.  I've never minded that really and actually was always proud. I think there was only one year that we did the full 25% for everybody.  But the reason for the switch to the 401K is because we're making more money than ever and need larger tax write-offs. I contributed the full $24K this year but what I just learned last week from this site, thank you Sam, is that the company can contribute profit sharing to the 401K, something like an additional $36K, and it doesn't have to be the same percentage for all. I'm sure that it has to pass some test but there is some freedom there to direct more to the shareholders.  I'm going to look into with our 401K guru with my accountant to get a handle on it but if anybody on this site knows the rules please chime in.  we have a 'Safe Harbor' 401K.  thanks.