Should I contribute $5,500 from my tax return to an existing simplified employee pension (SEP) IRA, or open a new traditional IRA account?
Me and my spouse were active contributors to our employer 401(k) plans in 2017. I have a simplified employee pension (SEP) IRA account from a past employer. I would like to contribute my 2017 tax return to an IRA account. If I want to contribute $5,500, should I open a new traditional IRA account or should I contribute to my existing SEP IRA account?
Love that you are putting your tax refund to good use. If you do not have self employed income (it sounds like your don't) you will not be able to contribute to the SEP IRA.
So, you should make the contribution to a IRA account, or to make life easier you can increase you contributions to the 401(K) plans by $5500 for the year.
I'm a big fan of keeping things simple, if you open an IRA, you can rollover your SEP into the IRA- main purpose would be to have less accounts to keep track of.
Best of luck.
I'd recommend opening a new Traditional IRA at a low cost provider like Vanguard. Then, roll the SEP from your old employer to your new IRA. Invest in low-cost index funds, with an allocation consistent with your risk profile.
If you are in one of the lower two tax brackets, you may want to consider opening a Roth IRA instead. I'd still roll the SEP to Vanguard, too, but it would have to be rolled to a Traditional IRA account. You can (if you'd like) then convert it to a Roth IRA (if you have the cash elsewhere to pay the taxes on the conversion).
Thanks for your question.
If you are no longer self-employed, you cannot contribute to a SEP IRA. You can still hold an old SEP IRA from when you were self-employed, but you cannot make contributions to it any more.
Also, please note, that since both you and your spouse had 401(K)s for 2017, in order to get a full deduction for your Traditional IRA contributions (for 2017), you combined Modified Adjusted Gross Income (MAGI) must be below $99,000. Between $99,000 and $119,000, you can take only a limited deduction. Over $119,000, no deduction is allowed. This is something that should be discussed and confirmed with your CPA.