Retirement savings for the self-employed
April 1, 2014 8:54 PM   Subscribe

It's April and time for yet another retirement account question. I am self-employed and want to open a new retirement account. Does anyone have experience with an individual 401(k) or SEP-IRA?

My accountant had suggested a SEP-ERA, but it looks like an individual 401 k may be a better fit.

I don't anticipate hiring anyone anytime soon, including a "common law employee?".
It's just me, and I need to save something for retirement this year!
Please help metafilter!
posted by natasha_k to Work & Money (5 answers total) 5 users marked this as a favorite
I am not an accountant, but was in the same place a month ago. My accountant told me that it's not possible to retroactively create an individual 401k after the end of the year. You can make deposits after jan 1 but the account must be established in the tax year that you're filing. I was able to open a SEP (at vanguard) and deposit money for 2013 with no hassle at all.

This article (from Forbes) agrees with my accountant.
posted by jeffch at 9:18 PM on April 1, 2014

I'm self employed and had a SEP-IRA in the past, and currently have an individual 401(k). The main reason I switched is that you can put more money into an individual 401(k) and I'm part of a high enough income couple that "tax sheltering" is definitely a thing for us. The SEP-IRA was, IMHO, easier to set up and work with (I did it on my own a few years back) and many of the self-managed online investment brokers offer them. It was more work to set up the individual 401(k) and fewer places offer them (but if your accountant is setting things up for you, that may not be an issue).

If you don't anticipate needing to sock away more than 25% of your gross, the SEP-IRA will work just fine. Another advantage of the SEP is that you can fund it until April 15, while 401(k) contributions need to be done by Dec. 31 if you're the sort of person who tends to put things off. So if you're thinking about the 2013 tax year, it's too late to fund an individual 401(k) anyhow.
posted by drlith at 9:24 PM on April 1, 2014

Another advantage of the SEP is that you can fund it until April 15

I'm self-employed and hadn't considered an individual 401(k) but that reason alone would make me stick with the SEP: the bulk of my retirement contributions happen after I get the initial tax report from my accountant in February and he tells me how much I can cut from my tax bill if I put a certain amount in the SEP.
posted by yerfatma at 5:45 AM on April 2, 2014

I was self-employed for 15 years. I put about 13% of my income in SEPs every year. It worked fine for me.

At one time when I was combining "qualified" funds, I was warned that the different plans are treated differently in variousl situations that probably won't happen such as bankruptcy and law suits. The bank or mutual fund reps should be able to enlighten you.
posted by SemiSalt at 6:10 AM on April 2, 2014

Thanks for clarifying! The 2013 cutoff for 401 (k) contributions does rule out that option for me!
posted by natasha_k at 5:23 AM on April 4, 2014

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