I've taken early retirement but plan to work part-time soon. I will have independent contractor status.My wife's salary and investment income put us at the marginal rate of 35% federal income tax. Thus everything I earn will be taxed at 35% + 9% state income tax + double FICA, that is, over 50% even counting the federal deduction for state taxes.I won't have many business deductions--mileage and part of my cell phone bill is about all. No home office, no equipment or wardrobe, maybe a dictionary or two.It's a low-paying job that I'm doing mostly for enjoyment and to pick up a few bucks for toys. I've already done the work on a volunteer basis and figure it would be nice to get paid for it as well. I estimate my yearly earnings will be around $15K.The question is: Can I defer income tax on all or most of my earnings with a Keogh or SEPP IRA? At the same time I would take an equal amount out of a money market fund (money which has already been taxed and saved) for spending--it would be like having tax-free income, except for FICA.For 2002 we had an AMT of about $350. Does the AMT affect my ability to use a Keogh or SEPP IRA in a tax-efficient manner?Thanks.--fleg
The question is: Can I defer income tax on all or most of my earnings with a Keogh or SEPP IRA? At the same time I would take an equal amount out of a money market fund (money which has already been taxed and saved) for spending--it would be like having tax-free income, except for FICA.Take a look at IRS Publication 560 for your options. I don't know much about Keoughs, but I'm pretty sure that a SIMPLE would let you defer more dollars than an SEP in your situation.Phil
A Keogh or a SEP IRA(Simplified Employer Plan not SEPP - Series of Equal Peodic Payments)will not defer most of your $15,000 Sch. C income. A SIMPLE IRA plan would allow the deferal of $7000 plus $500 catch up this year with low administrative cost and maximum choice of investment opportunities. A 401k could reduce SE taxes and defer the complete $15,000, but has more administrative expense. One person 401k are considerably cheaper to run than a larger plan, so this is still a practical option.
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