26-years-old with TSP, Roth, and SEP-IRA. Need Advice.

[Renegade313]

Hello Everyone,

I am 26-years of age and could use your advice. Here is my situation:

- I have a TSP and I will be contributing maximum every year.
- I have a SEP-IRA for my LLC business. I have not contributed anything yet ($0 balance).
- I have a Roth IRA. I contributed $500 this year, but later realized that my income will exceed the income limits to use the Roth IRA this year.

What is your suggestion here? Here is one idea.

- I was thinking to add $20,000 to the SEP-IRA so that it would reduce my business income by $20,000, which would then allow me to max out the Roth IRA for this year. Is that allowed and possible?
- After doing so, would I have any use for the SEP-IRA the following year, or should I transfer and combine it with the TSP? Someone told me I should combine it with the TSP then open an Individual 401k instead. Does this make any sense?

Thank you in advance.

 

[Renegade313]

In addition, should I just skip the SEP-IRA altogether... and just close it and use an Individual 401k instead?

https://personal.vanguard.com/us/whatweoffer/smallbusiness/individual401k

 

[Birchtree]

If my thinking is correct there are no income limits on contributing to a Roth IRA - the income limits dealt with a transfer from a 401K to a Roth IRA and that is no longer in place. I'd be inclined to keep the SEP-IRA but would not put the money into mutual funds - I prefer the dollar cost averaging benefits of dividend reinvestments from individual stocks. When you end up an old guy like me you can then transfer your TSP funds to your Roth over time to reduce your tax obligations. You are on the right track for long term planning. Read my post on trading for everyone.

 

[Renegade313]

If my thinking is correct there are no income limits on contributing to a Roth IRA - the income limits dealt with a transfer from a 401K to a Roth IRA and that is no longer in place. I'd be inclined to keep the SEP-IRA but would not put the money into mutual funds - I prefer the dollar cost averaging benefits of dividend reinvestments from individual stocks. When you end up an old guy like me you can then transfer your TSP funds to your Roth over time to reduce your tax obligations. You are on the right track for long term planning. Read my post on trading for everyone.

There are income limits for contributing to Roth.

 

[Birchtree]

Apparently you are correct about the income limits for contributions - but unless your name is on a secret IRS list I wouldn't worry about the $500 payment. I did do some reading about the individual 401K a few years back and the information was all beneficial about the dollar amounts you could tuck away.

 

[Frixxxx]

@ 26 you need to ask yourself a few questions:

1. MAGI (Modified Adjusted Gross Income)
2. Are there avenues to lower this number (401K, IRAs, mortgage interest)
3. Can I further invest with after tax money?
4. Can I live on with what is left over?

After you answer these tough questions, I recommend setting time goals for major purchases (home), business decisions (should have a 1, 3, 5 year plan).

Good Luck!