The Self Employed SEP IRA rule that changes everything!
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- Опубликовано: 6 авг 2021
- If you're self employed and have a SEP IRA or are considering one you should watch this video first. The big change that started back in 2019 has now made the SEP IRA almost completely obsolete. There are very few reasons anymore to use a SEP IRA over other retirement plans.
In this video I'm comparing the SEP IRA to a solo 401k for the self employed small business owner. I'm also showing you what you can do to take advantage of this major change and boost your retirement savings.
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More on the SEP-IRA to help you decide ruclips.net/video/T8Qc0nrwUQs/видео.html
This was very helpful, thank you!
Glad it helped, thanks for commenting!
Thank you!!! I was hoping there was a way to do this. I pay myself a relatively low (but still reasonable) salary and take the rest in distributions. The downside has been how little I can contribute to my SEP-IRA. This could make a huge difference for me.
🤔🤣What if a 1099 individual opens a business for sep. ira purposes? Just simply self-employed people paying him or herself. Is it legal ? Is it acceptable for the IRS to declare a business to be a forgery because it was set up to defraud the system?.
In any case, this video information is eye-opening. There are many things I didn't know before I watched this video. I'm definitely going to implement some of what you mentioned in this video. Please continue to share information.
There are a lot of us new to the country who are not really aware of retirement savings, aside from the old school 6,000 maximum limits that are available on the old books, when it comes to the system itself.
If people can max out at even 32k a year into a retirement account by opening a small business, it is an absolutely short road to a comfortable retirement.
It's Nov 2022 - what do I invest in with either a SEP or solo 401K so I don't lose all that money because we're heading for a huge market correction?
I'm inclined to go with SEP because I've started collecting Social Security, on Medicare and consider myself "retired". Fortunately I found a side-gig where I'm making some extra cash.......don't expect employment to make tons of money and it will probably last for another 2-3 years. Also, seems like the solo-401k setup is difficult (Fidelity).
Yeah, that makes sense for what you’re describing. You could also do the Roth of Traditional IRA too with that SEP. many possibilities.
I am a realtor now but still have a W2 job where I contribute and max out my employer sponsored 401k. Am I even eligible for Solo 401k? If not, is SEP IRA the best option for me to save on taxes from my income as a realtor?
I know that the pending IRS clarification on how the Secure Act 2.0 will permit and regulate Roth contributions to a SEP-IRA, so that may change the comparison between the SEP-IRA and Solo 401K but, that aside, my wife and I are sole owners/employees of a small business that files as an S-Corp. We contributed to a SEP-IRA during a single tax year (2022) but haven't contributed to that account since. For the 2023 tax year, we can go ahead and create solo 401K plans for the two of us through the S-Corp and that existing SEP-IRA will have no bearing on the 2024 tax scenario, correct, as long as we aren't contributing to it??? Thanks!
Generally you would roll into the solo 401k.
Thanks for the information! Im a little confused however. I thought you could now convert your SEP IRA to a "Backdoor ROTH IRA" as of Dec 2022? Maybe I didn't pay full attention to what you said lol? Also if I already have a Roth IRA is it then not possible to do a backdoor Roth ?
You could always do that, but you'll run into problems along the way (pro rata rule). Also, not the best even with the new Roth SEP.
I am in a partnership. And I just opened a SEP IRA but not yet fund it. Can I set up a Solo 401K? I want that Roth 401K advantage.
I have an S Corp. with two employees me and my wife, each 50% shareholders. We pay ourselves a reasonable wage through W-2. This the s-corp paid us each 25% of our gross into our SEP IRAs plans. Do me and my wife owe irs any 15.3% payroll taxes for the amount received on sep-ira received? I didn’t think so but someone told me I may. I was hoping you could clear that up.
no, just on the employee wages. Since a SEP is only employer funded and doesn't allow employee contributions there is no FICA tax on that amount. The same would be true for a solo 401k, which you can do with your spouse. It's what I do for my business.
Got a question! If you are an S-Corp with few employees and if you want to do SEP-IRA for yourself, do you have to contribute equally for your employees too? Or you can do it for yourself as an owner (self-employed) without including the employees? I need to know please, thanks.
Need to include all eligible employees.
I’m still a schedule C filer So I can’t do a solo 401k. I want to try to reduce my tax liability for this coming 2022 tax filing and was thinking of starting a SEP. Can a SEP be rolled over/converted into a solo 401k in a year or two when I think I’ll switch to a single member LLC taxed as an SCorp?
A schedule C filer can do a solo 401k. If you need help, reach out to our company. calendly.com/sicklehunter
Isn't a SEP IRA still the best option if you are a Single Member LCC (No employees) and your yearly earning from the business is very high? For instance, if your Single Member LCC business makes $500,000 in 2022, 2023 and 2024, you can place the maximum Federal allowable amount in a SEP IRA. If 2025 is a bad year, you are not obligated to put any money into your SEP IRA. Therefore the flexibility in this case of not contributing in "down years" but optimizing your contributions during "up years" is a benefit of using a SEP IRA over a Solo 401, correct?
No, you are not obligated to fund a solo 401k either.
@@TravisSickle thank you for your response. Setting aside the SEP IRA and Solo 401 are equivalent when it comes to no obligation to fund on a yearly basis, in my example above what is the pros and cons of each plan if you are maximizing your contribution?
I have a LLC and i am taxed as a S Corp. Would the 401k be worth it or should i continue to do SEP?
Depends on your income and how much you want to save. Also, if you have any full-time employees.
Likely, the 401k is better but of course, I don't know your total situation.
Would a SEP IRA be your go to if you have a 401k from another source or employer? That way you can pay the maximum in your 401k and receive employer contribution, as well as do the employer funded SEP IRA, and perhaps take advantage of the Backdoor Roth IRA to get the greatest benefits of all three options.
Can I contribute to solo 401K if I have a S Corp where I am 100% owner and I am the only w2 employee also ?
Yes
@@TravisSickle thanks so much. Do you review overall portfolio and advise also ? Ofcourse at some fees ? For long term wealth planning
@@pranayshah2146 yes, here is our link calendly.com/sicklehunter
I am a realtor and Notary. I am leaning Towards the solo or self employed 401k for most of the reasons you outlined. But like most business owners I wait till the end of the year to see the tax situation. What is the deadline for a 1099 employee under the solo 401k? I am told it’s dec31 but I read otherwise. Not looking to do an s-corp at this time.
You can open and fund it up to tax deadline including extension. The December 31st rule was removed with the secure act and the provision just went into full effect.
You don’t need an s-corp.
@@TravisSickle ok so the folks at fidelity told us we can only do company contributions because it’s past the 12/31 deadline for the solo 401k. can you point me to a link where it states on the IRS site we can do deferrals until tax deadline including extensions. I am referring with regards to deferrals (employee contributions). Fidelity states you can’t past 12/31. Thanks for any info
They’re wrong. I think I have a video citing the law. They may be thinking of another setup but not a single member llc.
@@TravisSickle all these financial institutions have different names for the vehicle. Solo 401k, self employed 401k, etc but they are the same. I specifically asked about their self employed 401k not the Sep -Ira nor the simple - Ira. I am still going to defer for FY2021 by my tax deadline of 4/18/22.
I’m not sure where to go to get a solo 401k so it was a lot easier to find a and set up my Sep Ira
Call our office, we can help set it up. 813-321-6423
Hey man. I like this video. I’m just really starting to attempt to educate myself on this type of stuff. I have a couple questions if I’m lucky enough for you to see this comment and for you to respond… Lol… So with everything that you said in this video… Brass tacks, with a solo 401(k), can I contribute say… $20,000 per year? Also, what is the interest/ROI? Where is or what is the interest based on? The S&P? Some other fund? And finally… What is the tax rate on savings of a solo 401K?
Hi Stephen, I did see your comment! First, thanks for watching! I made this video to answer your questions... ruclips.net/video/QaRSrgrA5Og/видео.html
I’m a bit lost, so for solo 401(k), we can now open and find the account up to April 15, 2022 for the 2021 tax year? I thought deadline was 12/31/21?
correct. The deadline changed with the Secure Act of 2019. The deadline includes extensions too so up to Oct 15th 2022 for 2021.
Hello! I don't understand where the $7065 (1/2 self-employment) number comes from for SEP IRA? Thanks! 1:21 mark
You don't tax a tax...so that's why it's the second half. It won't make sense unless you see the math. Checkout some of my other SEP IRA videos where I do the math.
good timing to come to your channel. I am plan to open Sep IRA account this week. Thanks for the info, explaining very clear. Also subscripted your channel.
Thanks Travis! Quality video as always.
Do 1099 employees count in the SEP IRA and/or Solo 401k calculations? Or W2 only?
w2 only. The 1099's can do their own plans. Because of that difference (and self employment taxes), it's really important to make sure your 1099 people are true independent contractors or the IRS will come knocking.
@@TravisSickle Perfect. Thanks for the response!
@@TravisSickle when you say 1099 people can do their own plans, do you recommend they do a Solo 401k or SEP IRA? Thanks.
@@danielcohen-vai2497 Solo 401k all day.
Hi Travis, After watching your video I'm thinking of moving money and stocks in my SEP to a Solo 401K. The problem is that I just did a contribution into the SEP for 2021 and I even bought some stocks (but I have not filed my taxes for 2021 yet) Once I moved the SEP into the 401K I should be able to contribute more into the 401 for 2021 . My concern is that will the IRS think I have two retirement accounts SEP and 401 for 2021? wha will be the correct procedure to close the SEP and make the contribution I made in the SEP for 2021 count as contribution for my 401K? Thanks !
Where can I get a solo 401k from
Why did you subtract 1/2 of the self employment tax for the SEP? Isn’t the self employment tax 15.3%??? I’m confused with your math on the SEP.
1/2 comes from the employer which is deductible. ruclips.net/video/gvKLbAzQ83s/видео.html
@@TravisSickle What about if I’m a solo member LLC and it’s just me. I have no employees?
Doesn’t matter, same math.
@@TravisSickle So I’m only responsible for half of the 15.3% self employment tax if I’m a solo member with no employees???
Hello!, thank you for the informative video. I am currently trying to make an informed decision regarding whether to pick a SEP or Solo 401-K. I am a Notary Public in California and do not pay SE Tax. For a similarly situated person, would you still advise a Solo 401-K over a SEP? If so, why?
Why don’t you pay SE tax?
@@TravisSickle because some notary income is excluded from se tax.
@@TravisSickle Notary Publics, in the State of California at least, do not pay Self Employment tax.
@@stevenaguirre2483 right, not something I encounter often. It's only for the notary service though and not other activities. Technically, it's not that you won't pay self-employment tax because you're a notary but you won't pay SE tax on the notary service.
@@TravisSickle I am a full time Notary, all my income IS from Notary services. Thank you for your help
How do you get 7, 065 on the 100K income. I thought it was half
That is half. The full amount is $14,130.
@@TravisSickle thanks I watched another one of your video's and got the info
What do you recommend if I have employees and don’t want to go with sep ira? What’s the next best option?
SIMPLE IRA
I am a Sole Proprietor. Previously, I used a SEP IRA. This year I opened a Solo 401k. I did so, so I reduce my taxable income. I did not, however, change my business type to an S corporation.
Was it a lot of paperwork? Who did you open it with?
Solo 401k isn’t that much paperwork. Depends on what you want to do.
Who can do a solo 401k? Do you have to be filed under an LLC or an s-Corp?
Either can do it. Can’t have any full time employees.
what are the cost/fees differences for running a solo 401k vs sep ira??
Whats the are some of the best solo 401k company you recommend and why?
Hello Travis, thank you so much for the informative video. Do you do consulting? Any way i could contact you? Highly appreciated.
yes...calendly.com/sicklehunter
what happens if i open a solo 401k and then end up bringing on employees later on?
For the Solo 401k, do part time employees disqualify you from participating. My wife and I are full time employees in my practice but we have two part time employees that each work 20 hrs per week.
$1,000 hours or less…so likely yes. Just do the math so you don’t go over with the part timers. This is a good topic for a video! Thanks for bringing it up.
Video upload and will be posted at 645PM tonight on the solo 401k with employees.
Where the $19,500 came from? I thought we can only do 25% from the W-2
The video compares the sep to the solo 401k. That was the 401k I was talking about.
This is amazing information, thanks for sharing. I just learned more in this video from you than any CPA I’ve ever worked with.