It looks like I'm screwed on contributing to a Roth and I'm not getting much benefit from my IRA. My firm isn't big enough to do a 401k and I don't like a SEP. my CPA is directing me towards a SIMPLE. Can someone help me on some questions:

1. Is there a Roth alternative or is it just a basic IRA?

2. If I need to sell some assets within the SIMPLE in order to reallocate my balanced portfolio, are these taxable events?

Thanks in advance!

No Roth option.

Not a taxable event unless they're withdrawn from the SIMPLE. It's effectively treated like a pretax 401k when it comes to transactions inside the account.

But harsher penalties if you take distribution in first two years. 25% penalty not 10%.

Maybe I'm missing something but why is Roth not an option?

What is wrong with a sep? I had one when I was a 1099 and thought it was great.

Why is your firm not big enough to do a 401k?

queso1 said:

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It looks like I'm screwed on contributing to a Roth

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why?

Can you do a solo 401k instead of SEP?

I'm going off what my CPA told me:

1. I apparently have too much income to do a Roth
2. I think on a sep you have to match with employees.
3. 401k is a major undertaking and the fees are usually to high, plus you have to match as the employer.
4. Is the a solo 401k option? I did not know about this.

A few things:

The fees on a 401k will be higher but could be worth it for a few reasons.

The Simple Ira will also require you to match employees contributions so you don't save any there.

The 401k will allow you to contribute 19/24k to a Roth account plus you can continue funding your personal Roth IRA with another 6k each year.

You can make the profit sharing contribution if you want but it's discretionary.

You can't do a solo if you have employees which it sounds like you do.

I don't believe you have to match 401k - it's a common benefit, but not required to my knowledge (just looking at this as an employee, so maybe I'm misunderstanding).

queso1 said:

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I'm going off what my CPA told me:

1. I apparently have too much income to do a Roth
2. I think on a sep you have to match with employees.
3. 401k is a major undertaking and the fees are usually to high, plus you have to match as the employer.
4. Is the a solo 401k option? I did not know about this.

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Your CPA is wrong. You can do a back door Roth. I might consider a new CPA if they don't know that.

Granted, I'm continually amazed at the number of professionals (your CPA) who don't know about this.

If he does a simple Ira he can't do a backdoor Roth IRA

JDCAG (NOT Colin) said:

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I don't believe you have to match 401k - it's a common benefit, but not required to my knowledge (just looking at this as an employee, so maybe I'm misunderstanding).

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For all practical purposes, a small employer is going to have to match through a safe harbor plan anyway or run the likely risk of failing discrimination testing. With a SIMPLE, there's 2-3% matching, but no testing, no IRS filing, no management fees. And you can still contribute to your traditional IRA.

yes and the safe harbor on a 401(k) can be as low as 3%. Again the only thing queso is looking at is saving annual fees on the plan. The trade off is he can bump his contributions up 6k or so? But that might be a reason to actually look at PEOs as well. I have had a few legal professionals get into the PEOs and it has saved them greatly with the bundling of benefit plans and fees (especially if you offer or are thinking about offering medical insurance)

I would agree that the simple is way better from administrative standpoint and if the goal is to only contribute pre tax and you are satisfied with the limit of 13k per year plus the 3% match then that's your best option.

But if you want to contribute a larger amount and aren't afraid of adding more to employees accounts and you value the ability to contribute to your Roth IRA and Roth 401k then the 401k route is worth looking into.

Does a PEO get you around the small business discrimination testing problem? As in, are you tested against the entire PEO employee base instead of just your own payroll?

Not exactly sure on the discrimination testing. I think most PEOs would require a safe harbor to eliminate that issue. I can ask one of my PEO ladies.