I recently ran across an article on SEP (Simplified Employee Pension) IRAs over at Blueprint and, as I read it, I had an epiphany. The upshot was that if you have any self-employment income (like ad revenue from blogging), you can open a SEP-IRA and then make contributions to it as your own employer. This shields your earnings from
both income tax and self-employment tax on at least the employer contribution. But in reading this article, I got to thinking that a SEP-IRA might also provide a way of socking away more retirement funds than would otherwise be allowable under the Traditional and/or Roth IRA contribution limits.
A bit of digging revealed that employer SEP contributions don’t appear to count against your limit for Traditional or Roth IRA contributions (again, you’re your own employer, so you can make these contributions on your own behalf). Assuming this to be true, you can max out your regular IRA and contribute to a SEP. But wait! It gets better… You can also rollover your SEP-IRA into your Traditional or Roth IRA. Thus, you can take advantage of the SEP-IRA without having to keep track of an extra account over the long term… Rather, you can open your SEP account, fund it, roll it over into your Traditional or Roth IRA, and then close it. While it’s a bit of extra work, it might be a good way of supercharging your retirement savings if you have any self-employment income lying around.