Published by Taylor Financial Group
Q. Dear Debbie: I participate in a 401(k) plan with my employer but I am also self-employed. Can I contribute to an IRA plan while I am contributing to my 401(k)?
A. Yes, you can. A common misconception is that if you make a contribution to one qualified plan then you are prohibited from making a contribution to another qualified plan. This is not necessarily the case. You can continue to make a personal (employee) contribution to your 401(k) plan, which is limited to $18,000 in 2016 ($24,000 if age 50 or older), through your employer. Since you are self-employed, you can also open a SEP (Simplified Employee Pension) IRA plan and make contributions of up to $53,000 or 25 percent of your total compensation with your business, whichever is greater. While SEP’s don’t offer as many features as 401(k)s, they do offer features which may make them a great option for the self-employed. In addition, as long as you have earned income, you can contribute to a traditional IRA plan, as well. Many individuals today are not adequately preparing for retirement. Maximizing your contributions by taking advantage of the multiple tax deferred accounts available to you, is a great way to work toward your long term retirement goals. Be sure to consult with a tax advisor regarding your specific situation. Certain income level restrictions exist that may affect contribution deductibility.
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Debbie Taylor, principal of Taylor Financial Group, a Franklin Lakes-based independent wealth management firm, provides the above information. The opinions voiced are solely those of Taylor and do not reflect the views of LPL Financial, nor should they be taken as investment, tax, or estate planning advice for any specific individual. Consult with your own tax, legal or investment professional on how the information may relate to your situation. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.