Retirement Plan?? / Single Member LLC

[bbrownatl]

As background, I have a full time Corporate job with a 401K and then also a side tax practice (setup as a single member LLC) that nets about $15K per year. For years, I've been able to max out the 401K of my Corporate America job. Though, for the past two years, the plan discrimination testing has resulted in me getting a significant check back after year end due to contribution limitations imposed by the discrimination testing. So, I'm considering either a SEP IRA or an Individual 401K via Schwab since I have self employment income. Any suggestions, recommendations, or other considerations? I'd just like to sock away a bit more money but am limited due to the discrimination testing. Seems weird to me that I could do the same job for the company across the street and be able to fully max out my 401K. However, due to the employee income mix of my current employer, I'm limited in the amount that I can contribute. Thanks in advance for your input.

Brian

[John of PA]

I don't see why you cannot fully fund a SEP, or even better, a SIMPLE Plan based on your 15000 Sch C with the SIMPLE maximums, as your Sch C income is unrelated to your 401k job.

[mastertaxguy]

May want to check....

It may be appropriate to check out CCH's Master Tax Guide Paragraph 2106A. (I could not find a specific reference in TTB--perhaps I did not look hard enough.) My belief and practice has been that if a self-employed person also has retirement plan coverage through an employer their compbined tax deferral deferral limits are the maximum amout per taxpayer, not per employment/employer. In your scenario, if you are maxing out on the day job but getting some of it back due to the non-discrimination issue that amount could be set aside under self-employed plan tax deferred. A problem may be that the TP won't know what is "payback" is until after January 1. This does NOT prevent the taxpayer from contributing to a non-deductible IRA of course. Your facts suggest his income may be too high to contribute to a Roth. See IRS Notice 2013-86 and IRS Publication 560.

[Roberts]

I know this is crazy but if you are planning on using Schwab, why not call and get their opinion since they actually deal in this scenario routinely?

[ATSMAN]

I have a SEP plan myself. Very easy to setup using the IRS form 5305 SEP. Most commercial banks and investment firms have products for funding the SEP. I use a combination of mutual funds and CD over the years.

I also participate in a 401(k) at my other job and contribute the max I can.