SEP-IRAs are easy to set up.
That’s exactly the problem.
Here’s what most law firm owners don’t realize
about the plan their CPA set up years ago:
1️⃣ Lower contribution limits than you think.
You can only fund the employer side, typically 25%
of your W-2 income.
And if you’re over 50? There’s no catch-up contribution for you.
2️⃣ If you have employees, you’re on the hook for them too.
Whatever percentage you contribute for yourself, you have to contribute the same percentage for every eligible employee. That adds up to a potential big number fast.
3️⃣ No loan provisions.
Need access to your own money? It’s a withdrawal, not a loan. Fully taxed. And if you’re under 59½, add a 10% penalty on top. You don’t intend on borrowing, but things in life happen. Why not make it easy for yourself.
4️⃣ The pro rata rule kills your Roth strategy.
Have a SEP balance sitting there? It ruins your ability
to do a clean Roth conversion. The math just doesn’t work anymore.
A Solo 401(k) or a properly designed traditional 401(k) plan is typically the better move. More room to save, more flexibility, more control.
Most law firm owners never find out their plan is
working against them until it’s cost them years of
missed contributions.
Want to know if your current plan is actually the right one?
Reach out to me and let’s discuss what your options are.