Message Font: Serif | Sans-Serif
No. of Recommendations: 1
Someone just told me its possible to max out a sep ira and then also contribute 5k to a Roth Ira on top of that. Is this true?

Yes, assuming after maxing out the SEP IRA, you meet the income limits for the Roth.

Next question and the important one for here: does the above answer also work for a solo 401k AND is it possible to do a solo 401k as a Roth?

It depdends on which account you are substituting the solo 401(k) for - the SEP IRA or the Roth IRA....

Maxing out a SEP IRA and contributing to a solo 401(k) - nope.

'Maxing out' a solo 401(k) and contributing to a Roth IRA - yes, again assuming you meet the income limitiations for the Roth IRA.

However, 'maxing out' a solo 401(k) isn't as simple as 'maxing out' a 401(k) administered by your employer. There are two types of contributions to a 401(k) - employee and employer.

As the employee with a solo 401(k), you can contribute up to $17,000 (plus an additional $5,500 if you will be 50 or older by the end of the contribution year) of your compensation. (This is the same as if you were contributing to an employer's plan.) The employee contributions can be to either a Roth account or a traditional (pre-tax) account, or a combination of the two - depending on how you set up your solo 401(k).

As the employer with a solo 401(k), you can contribute up to 25% of your net profit. All employer contributions must be pre-tax.

Total contributions of employer and employee may not be over $50,000 ($55,500 if you will be 50 or older by the end of the contribution year).

Final question: what are the costs involved with doing a solo 401k? How is such a thing done? I run a business as a sole prop, a one man show.

Depends on the provider, but Fidelity, Vanguard and many brokerage firms have solo 401(k) offerings, so you might want to check anywhere you currently have accounts, as well as asking your accountant for recommendations.

is it possible to move holdings from a standard brokerage account into a 401k or Roth Ira account without selling and repurchasing all the shares?

No. 401(k) contributions must come from your compensation, or your company's profit, so they can't be money that already exists in other brokerage accounts. Roth IRA contributions must be in cash.

Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.