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Author: bawden Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: Help with Options for Parents Date: 1/14/2004 2:47 PM
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My parents are 53 and 57. They are both self-employed. Only recently have they begun to learn about foolish money management and retirement. They have no debt (other than their home mortgage) but unfortunately have VERY little retirement savings (my guess would be about $10,000-$15,000). I am trying to help them make the best decisions possible re: retirement investing on a going forward basis and could use your advice!

FATHER
My father is now covered by a SEP-IRA that beginning in 2003 will receive approximately $3000-$4000 per year.

I believe that my father is not eligible to make deductible contributions to a traditional IRA because he is eligible for the SEP and my parents joint income is $70,000/yr. Is this correct?

MOTHER
My mother is not covered by any employer retirement plan and will make a traditional IRA contribution of $3000 in 2003 plus a $500 makeup (for a total of $3500).

BOTTOM LINE
So as things stand, I believe my parents are eligible to make a total reitrement contributions each year of $3500 (for my mom - adjusted up each year) and whatever goes into my Dad's SEP-IRA.

Obviously, they can save more on their own (in a non retirement specific/tax advantaged vehicble) but are there any other options for them that carry tax advantage?

Thanks!
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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38539 of 74759
Subject: Re: Help with Options for Parents Date: 1/14/2004 3:08 PM
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A self-employed person is allowed to make a contribution to a regular IRA in addition to a SEP-IRA. The SEP and the regular traditional IRA can be put in the same account. Instead of a regular traditional IRA it would make more sense for your dad to open a Roth IRA, which would be a separate account from his SEP. Yes, he is allowed, at his income level, to both put $3500 into the Roth and whatever the figure may be into his SEP.
Best wishes, Chris

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Author: ngcpa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38540 of 74759
Subject: Re: Help with Options for Parents Date: 1/14/2004 4:03 PM
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A self employed person has many options. The best (largest contribution)
would be a 401K/profit sharing plan. Assuming they have enough income,
they could contribute $ 16,000 (if over 50) plus roughly 20% of their net
self employed income (for 2004 - this number will increase as employee 401K
plans will to eventually $ 20,000). I have a plan like this through
Fidelity. This would not interfere with their Roth IRA contributions of
$ 3,500.
:>) Norm

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38542 of 74759
Subject: Re: Help with Options for Parents Date: 1/14/2004 8:39 PM
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There are some very good posts here.

I would like to recommend SIMPLE IRAs, particularly if there are employees associated with either business.

The ERISA requirements of PS/401k plans can be burdensome. However if there are no employees a solo 401k is better than a SEP.

buzman

Not intended to be financial advice. Always consult with a professional before making a decision.

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Author: MissouriGup Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38558 of 74759
Subject: Re: Help with Options for Parents Date: 1/15/2004 9:30 PM
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Obviously, they can save more on their own (in a non retirement specific/tax advantaged vehicble) but are there any other options for them that carry tax advantage?

Others have made some very good suggestions, but I might suggest that they may want to aggressively pay off their house (I would imagine that they don't have enough deductions to amount to more than the standard deduction). US Government Bonds and insurance annuities also offer other options.

Gup


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Author: TwoCybers Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38575 of 74759
Subject: Re: Help with Options for Parents Date: 1/16/2004 1:35 PM
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The maximums for SEPs are well beyond the numbers you have posted, however the numbers you have posted may be the maxium your parents feel they can set asside.

See IRS Publication 560 for SEP - I believe you can set asside 25% of with a maximum amount - but that maximum will not come into the picture until incomes are well above $70K. Both parents could have SEPs as far as I know.

Gordon
Atlanta

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Author: ngcpa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38576 of 74759
Subject: Re: Help with Options for Parents Date: 1/16/2004 1:38 PM
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Be careful, that 25% includes the contribution, so the real number is 20%.
Furthemore the base is also reduced by the front page subtraction for 1/2
of the social security tax.
Norm

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Author: bawden Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38579 of 74759
Subject: Re: Help with Options for Parents Date: 1/16/2004 1:48 PM
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My understanding of the way SEPs work is that the employer must make the same % contribution for all employees. This has kept my father from contributing more to his own SEP because the business cannot/does not want to contribute a greater % to all the other employees SEPs.

If my understanding is not correct, let me know. Thanks for your thoughts!.

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Author: bawden Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38580 of 74759
Subject: Re: Help with Options for Parents Date: 1/16/2004 1:54 PM
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A self employed person has many options. The best (largest contribution)
would be a 401K/profit sharing plan. Assuming they have enough income,
they could contribute $ 16,000 (if over 50) plus roughly 20% of their net
self employed income (for 2004 - this number will increase as employee 401K
plans will to eventually $ 20,000). I have a plan like this through
Fidelity. This would not interfere with their Roth IRA contributions of
$ 3,500.
:>) Norm


My father's business does employee persons other than himself. My mother does not have a formal "business" that would allow her to create a 401(k). I believe they have also stayed away from 401(k) because of the burdensome requirements. I do not believe there is any way for my father to contribute to a 401(k) unless his company sets one up itself but if you know of different information I would appreciate knowing it as well. Thanks.

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Author: ngcpa Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38582 of 74759
Subject: Re: Help with Options for Parents Date: 1/16/2004 2:02 PM
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Bawden:
Sorry, I didn't realize your father had employees.
Norm

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