Confused: My CPA just asked about making a deductible contribution to a Traditional IRA - why now?

Thanks for explaining! So this is basically a way to reduce my taxable income for 2024 even though we're already in 2025? That makes sense why she'd bring it up now. Do you think a traditional IRA is the best option for someone self-employed? I've heard about SEP IRAs and Solo 401ks too, but get overwhelmed with all the options.

Yes, exactly! You can make IRA contributions for the previous tax year until the tax filing deadline, which is usually April 15th. This is one of the few "retroactive" tax moves you can make. For self-employed individuals, a Traditional IRA is just one option, and probably not the most advantageous if you're trying to maximize retirement savings. SEP IRAs and Solo 401(k)s allow for much higher contribution limits. With a SEP IRA, you can contribute up to 25% of your net self-employment income or $69,000 for 2025, whichever is less. A Solo 401(k) potentially allows even more through a combination of employer and employee contributions.

Does it actually explain the differences between all the retirement accounts? I'm always confused about what I qualify for since I have both W-2 and 1099 income. And does it help with figuring out the actual process of setting them up?

I'm skeptical about these online tools. How accurate is it compared to talking with an actual financial advisor? My situation is complicated with multiple income streams and I'm worried automated tools might miss something important.

It absolutely breaks down the differences between all retirement accounts and explains which ones you qualify for with mixed income. For your W-2 and 1099 situation, it would show exactly how much you can contribute to each type based on both income sources. It doesn't walk you through the setup process with specific brokerages, but it does explain what documents you'll need and the general steps. Regarding accuracy, I had the same concern initially. What impressed me was that it asks very detailed questions about your specific situation - much more comprehensive than I expected. It's not just generic advice. I actually had my financial advisor review the recommendations, and he was surprised by how aligned they were with what he would have suggested. The main difference is my advisor charges $300/hour while this tool costs significantly less for the same information.

How does this actually work? Do they just call the IRS for you? Seems weird that they could get through faster than I could by calling directly.

This sounds like a scam. The IRS doesn't give personalized retirement advice. Their job is to collect taxes, not be financial advisors. I doubt an IRS agent would walk you through retirement options - they'd just direct you to publications on their website.

They use a combination of technology and human representatives who know exactly when to call and which options to select to maximize your chances of getting through. They're essentially professional line-waiters who have optimized the process. When an agent is about to pick up, you get a call and are connected directly to that IRS agent. You're the one who actually speaks with the IRS. You're right that the IRS doesn't provide comprehensive financial advice, but they absolutely can and do confirm information about tax-advantaged retirement accounts, contribution deadlines, and documentation requirements. The agent I spoke with clarified which forms I needed to file to properly document my SEP IRA contribution and confirmed the contribution deadlines. They also verified which IRS publications contained the detailed rules about contribution limits for my specific situation. What they won't do is tell you which retirement account is "best" for your situation - that part still requires your own research or a financial advisor.

Those contribution limits are way higher than I realized! Is it difficult to set up a Solo 401k? I've heard they have more paperwork and requirements than IRAs.

Setting up a Solo 401k is slightly more involved than an IRA, but not as complicated as many people fear. I set mine up with Fidelity in about 30 minutes online plus maybe 15 minutes on the phone. The main additional requirement is filing Form 5500-EZ once your balance exceeds $250,000. The biggest consideration is timing - for 2024 tax deductions, a Solo 401k needed to be established by December 31, 2024 (though you can still contribute until your tax filing deadline). SEP IRAs can be established and funded up until your tax filing deadline including extensions. So if you're looking to reduce 2024 taxes now in 2025, a SEP IRA is probably your best bet since the Solo 401k deadline has passed.

I set up a Traditional IRA when I first started freelancing and definitely regret not going with a SEP IRA from the beginning. I left so much tax savings on the table for years by limiting myself to the smaller contribution amounts. Now I have both, but wish I'd maxed out the SEP options sooner.