OK, I am self employed and want to make contributions for my business (which is a sole prop) thus I am facing the dilemma of SEP 401K or SEP IRA. what is the diff. practically ? as I am going to take that money back in 1.5 years when I turn 59.5. So as you see I am doing this as a TAX move! Any ideas? (I know that I can just contribute the same as individual because I am a sole prop.) Well which one would you do and why (in my shoes). I appreciate your answers.
SEP account question any lawyer in the room?
- Thread starter TimtheEnchanter
- Start date
Wiz,
This is a complicated area because of the way SEP IRA contributions are treated and the variability in what companies charge to help you set up a SEP 401K. I suggest you hire an accountant to help you figure out which is better in your situation rather than relying on this site, on which people frequently claim to know about things that they don't really understand. You don't need to keep the accountant if you don't want to: you may just pay for a couple of hours of their time and get them to recommend someone to give you an estimate regarding the 401K part.
This is a complicated area because of the way SEP IRA contributions are treated and the variability in what companies charge to help you set up a SEP 401K. I suggest you hire an accountant to help you figure out which is better in your situation rather than relying on this site, on which people frequently claim to know about things that they don't really understand. You don't need to keep the accountant if you don't want to: you may just pay for a couple of hours of their time and get them to recommend someone to give you an estimate regarding the 401K part.
hmm....my wife is a tax CPA.. 
we only have roth ira and 401K from our jobs.
I think it is a no brainier for a SEP IRA. (or any traditional IRA) - cost nothing to setup at Vanguard....thanks for the reply...
we only have roth ira and 401K from our jobs.I think it is a no brainier for a SEP IRA. (or any traditional IRA) - cost nothing to setup at Vanguard....thanks for the reply...
An Individual 401(k) must be opened before year end, even without any contribution which is payable until the due date of your return including extensions. Conversely, you can open and fund a SEP IRA by the due date of the return including extensions. So if you didn't open the Individual 401(k) already, your best choice is the the SEP IRA. The SEP IRA is a profit sharing plan, whereas the Individual 401(k) has both a profit sharing plan plus an elective deferral ($17,500 for 2014 and $18,000 for 2015). Traders are much better off with an employer 401(k) on an S-Corp level as they can achieve the maximum contribution on lower compensation than on a SEP IRA. That saves Medicare tax, unless you also pay Medicare tax on unearned income anyway. If you have excess self-employment income it doesn't matter. But traders can decide on the compensation amount. We explain this all in our Trader Tax Center.
Thanks for the replies. I did open both! I have a business (small) and I am plowing all my income into my 401K, I also put some in the SEP IRA (for 2014)