I also posted this on the "Ask A Foolish Question" board, although this is probably the better place for it. I have an SEP-IRA from my freelance writing days that I've never done much with. Now I'm employed full-time and interested in getting back into investing. Can I still make contributions to the SEP-IRA? My employer does not offer any sort of retirement plan. Additionally, I still receive some self-employed income from doing some freelance writing on the side. Or do I need to open a new traditional IRA account. Can I combine the SEP-IRA into the new account? Or do they have to forever remain separate? In that case, should I just close the existing SEP-IRA? It has less than $1000 in it, and I think it would be eaten alive by fees if I don't do something with it. Any help and advice would be appreciated. Thanks!
Yes, SEP-IRAs can be converted to a traditional IRA with no tax consequences. You could add traditional IRA contributions to that. Whether or not you should contribute new money to a traditional IRA (assuming you can deduct the contribution) or a Roth depends on your current income tax bracket and your projected income tax bracket when you retire.You could, if you wanted, also convert it to a Roth IRA at this point. If you're in a low tax bracket (i.e. 15% or less) now but you think it may be higher in the future, this would be a good time to perform a Roth conversion as well if you can afford the tax (less than $150 in that case plus state taxes, and possibly considerably less).As far as your freelance work, I believe this is also a form of self-employment income (may depend on the work, and I'm not a tax pro.) If it's self-employment income, it's subject to a punitive 15.3% self-employment tax. You could also open something like a self-directed individual 401(k) plan for the self-employment income and shelter it from income taxes (but not self-employment taxes).#29
Thanks for the quick response. I only make about 50K, so my tax bracket is not that high, and I'm not anticipating making anymore than that in retirement, should I ever retire. I think I'll just convert my SEP-IRA to a traditional one to keep things simple.
If you only make $50K, thus your tax bracket is low now, then a Roth is indicated.You might even want to convert your Traditional/SEP IRAs (or parts of them) to Roth IRAs.
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