I have has ~5k in 1099 income for 2015. I also have a W2 for the year. When it comes to retirement accounts, I have IRAs (rollover 401k), an active 401k, a roth 401k and a roth IRA. I didn't make any LLC or anything else for the 1099 income. Just worked as a contractor. When I was looking to see if we can reduce our taxable income for 2015, I came across SEP IRA. So, hereunder are my questions:
My information from digging through IRS FAQs is that I can open up a SEP IRA even though I don't have an llc. Is my understanding correct? Contribution limits for SEP IRA is 53,000. Even though my 1099 income is just 5k, can I contribute more than 5k to the SEP IRA account or is the contribution limit - 25% of the 1099 income? Can I have an IRA, 401k and SEP IRA all together? If I can have it all, does the IRA consider all of the funds as commingled? Are there any pitfalls to watch out or strategies that will side step issues with having 3 such accounts? Thanks for your time.
In regards to your question, can I have an IRA, 401(k) and SEP IRA all together, do you mean at the same time or combined into one account? I would need to know the answer to this question first as there are a number of factors to consider.
The funds would not be considered comingled if you have 3 separate accounts.
With regards to the 1099 income and contribution limits for a SEP IRA you need to consult with a tax advisor or CPA as calculations are complex. You may want to read IRS Publication 560, page 7 that refers to “deduction limit for self-employed individuals.” I would also recommend that you meet with a financial advisor in your area to help you determine the appropriate retirement accounts you should have given your various sources of income and financial goals.
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Two separate questions here so I will answer separately.
Contribution - generally contributions can only be made against earned income. If the 1099 is earned income and you have no other expenses to offset that, then you could contribute $5,000. A SEP IRA uses a calculation based on net income so without going through it, you would be best off contributing to a normal IRA for 2015, since that contribution limit is $5,500 and you are already limited by your income.
Consolidation - if the only account that will receive future contributions is an IRA, you should be able to consolidate all non-Roth accounts into that one IRA and then you could contribute all Roth-type accounts into a Roth. Then you have one Roth, one Traditional and simplify your life dramatically.
If you would like further help with consolidation or the like, please feel free to email me @ firstname.lastname@example.org