20Something Finance

The IRS has announced that the 2021 tax filing start date (to file your 2020 income tax return) has been delayed until the end of the second week of February, 2021. You can technically complete your tax return prior to the tax filing start date, however, your return will be held for processing (either by the IRS if you file directly or for e-file submission by tax software companies) until the tax start date. I would not recommend filing your return prior to the tax start date, as there could be a number of late changes to tax forms and software that could impact your return, and there is no benefit to filing sooner. According to the IRS, The February 12 start date for individual tax return filers allows the IRS time to do additional programming and testing of IRS systems following the December 27 tax law changes that provided a second round of Economic Impact Payments and other benefits.

While it was created to be (and is) a “simple” retirement account option for employers with fewer than 100 employees (requires very little admin filing and costs to maintain), it is far from being the most “simple” of the three self-employed retirement account options for self-employed individuals, in my opinion. Separately, you can also match yourself as employer, with two options: • match the employee contribution on a dollar-for-dollar basis up to 3% of the compensation (not limited by the annual compensation limit), or • make non-elective contributions of 2% of the employee compensation up to the annual limit of $285,000 in 2020 and $290,000 in 2021. Similar to the Solo 401K, if you contribute as an employee and participate in any other employer plan during the year (i.e. a 401K in your day job), the total amount of the salary reduction contributions that you can make to all plans you participate in as an employee (including self-employment) is limited to $19,500 in 2020 and 2021. For example, if you are under age 50 and have contributed $12,000 to your day job employer sponsored 401K, you can then only contribute $7,500 ($19,500 – $12,000) to your SIMPLE IRA as an employee.

Must have received at least $600 (2020) or $650 (2021) in compensation from the employer (self-employment income) Self-employment income for the purpose of this deduction means net profits from a Schedule C or Schedule F, self-employed income from a partnership, or wages as a shareholder-employee in an S-corporation. SEP IRAs have the same IRA contribution deadline as Traditional and Roth IRAs and the tax deadline for that calendar year (typically April 15). To recap, the maximum IRA contributions for Traditional and Roth IRAs are capped at $6,000 in 2020 & 2021 (with a catch-up contribution of an additional $1,000 if you are age 50 and above). This is where SEP IRAs deviate substantially from Traditional and Roth IRAs and can be vastly superior, if you have self-employment income.

I made the maximum 401K contribution of $19,500 and paired it with an employer 401K match of 50% ($9,750). While I am no longer on a high deductible health plan (HDHP), I was able to take advantage of a $2,000 employer contribution to our HSA at the start of the year. Mental Health: not working while mostly quarantining at home is not a good combo for sustainably good mental health. I know I’m not alone in the struggle of feeling isolation, but my hope is that I can focus on the physical health aspects enough to drive better mental health until we’ve reached a heavy herd immunity through vaccinations.