Tax Time: Retirement plan for Indies

Tax Time here in the U S of A.   This post is for self-employeed and small business owners in the USA but does not constitute tax advice – you should consult a qualified licensed/certified tax professional – but is just some information to help you ask them some leading questions and pointers to documentation on the website for educational purposes.


As I’m calculating the basis in my SEP-IRA due to some conversions of IRA to ROTH IRA, I’m reminded that I lost out on about 10 years of pre-tax retirement savings due to a bad CPA who said I wasn’t eligible to do so since it was an S-Corp.  Got a new CPA and found out the first one was wrong (or the law changed and he was wrong at first but didn’t inform me that it had changed).

I suggest you educate yourself by starting at SEP FAQs and learn enough to ask the questions I should have :-/

The great thing about a SEP-IRA, for an S-Corp anyway (not sure about LLCs or sole-proprietors), is that the business makes the contributions for the employee and these contributions are deductible business expenses.

The limits are also a LOT higher than you as an individual have.  From an FAQ sub-page linked to from the one above:

How much can I contribute to my SEP?

The contributions you make to each employee’s SEP-IRA each year cannot exceed the lesser of:

  1. 25% of compensation, or
  2. $53,000 (for 2015 and 2016 and subject to annual cost-of-living adjustments for later years).

These limits apply to contributions you make for your employees to all defined contribution plans, which includes SEPs. Compensation up to $265,000 in 2015 and 2016 and subject to cost-of-living adjustments for later years) of an employee’s compensation may be considered. If you’re self-employed, use a special calculation to determine contributions for yourself.

So if you’re making more than $72,000 a year you can start to exceed the $18,000 personal contribution limit to a SEP-IRA or 401K.

This makes it sound like you don’t have to be a Corporation (but read Publication 560 & ask your CPA):

How much can I contribute if I’m self-employed?

The same limits on contributions made to employees’ SEP-IRAs also apply to contributions if you are self-employed. However, special rules apply when figuring the maximum deductible contribution. See Publication 560 for details on determining the contribution amount.

The only real down-side that I’m aware of (again, consult your hopefully better-than-my-old-CPA CPA) is that you make this contribution for all employees who meet the criterion you set in the SEP Plan Document.  The IRS has a “model SEP plan document”, form 5305-SEP that I used and that might be enough for you.  See the details/restrictions here.

My company mostly used contractors and I set the requirement to full-time employment for 3 years which was likely to exclude all but the most dedicated and valuable employees (and which I already qualified for :)).

On the other hand, having a good retirement plan that is competitive with with a big company’s 401K plan might help you attract employees that you otherwise couldn’t, so you might want eligibility that let’s employees participate as soon as they’ve passed some introductory trial period (90 or 180 days or whatever).  Notice that the limits for the SEP-IRA are actually higher than those for a 401K plan once compensation crosses the $72,000/year threshold.  So you can actually provide a more aggressive retirement plan with a SEP-IRA plan than with that big company 401K plan (unless I’m missing something).

And the employee can also make a ROTH IRA contribution as well (subject to the usual ROTH IRA contribution limits).

A SEP-IRA is cheaper to operate than a 401K plan (which is complicated enough that you have to pay a service to operate it for you – and they aren’t cheap).  Your employees can open their own SEP-IRA account and your business simply deposits money into it.  (See the IRS site for details).

Over the 10 years I was operating with the bad CPA I could have saved a lot more for retirement than the ~$4000-$5000 ROTH IRA limit, if only I’d known….   Now you know.

Go forth and save those pre-tax dollars for retirement!

Your 50-year-old self will thank you.  😀


This is not tax advice. All readers should consult a qualified tax professional about any tax decisions they make for themselves or their business.

Update: Kickstarter Canceled; so, what’s next?

So the kickstarter that would have funded continued development of the game 1879 for which Geek & Dad was  writing the iPad/computer version has been canceled by FASA due to lack of interest (or inability to get the word out, hard to know):

KS Cancellation and Thank You

Update #3 · Dec. 06, 2012

Our project of 1879 iPad App, RPG, miniature game and figures has been live for over a week now. Based on the number of project backers, pledges and trends it looks like meeting our goal will be very challenging. Considering all of the factors, we have decided to suspend our project as described.

First of all I would like to thank all of you who backed our project. Your commitment is what Kickstarter is all about.

We had hoped that the combination of miniatures, RPG and software would appeal to a large number of backers. Unfortunately, this has not been the case. So while work on the core miniatures game and rpg will continue, albeit at a slower pace, work on the iPad application will be halted.

Look for a revamped Kickstarter project early in the New Year. This streamlined project, focused on the new 1879 game system and miniatures, will hopefully be more successful.

To all those who backed this project, once again thank you.

Thank you,

Ross Babcock

That means we’ll be stepping back and figuring out what to do next.  Geek has 11th grade in high school to finish, a part in a local seasonal performance, track team and working towards his 2nd degree black belt in Tae Kwon Do in spring, and running lights and/or sound for the local children’s theater’s winter production, so I think he’ll avoid getting bored (!).

As the Dad, on the other hand, I will be footloose and fancy-free!  Well…, not exactly – those pesky bills keep showing up so I imagine I’ll have to find some paying work to fend them off! 🙂  I’m actually looking forward to diving back into iOS and OS X native coding – I’ve missed Objective C, Xcode, and the Cocoa frameworks quite a bit while we’ve been in Unity3d using JavaScript, C# and .Net.  I have a copy of @bdudney’s iOS 6 SDK book (which looks quite good for intro/intermediate programmers so far), and have also been asked to review another upcoming iOS 6 book by the publisher.  So between those I ought to be getting up to speed on iOS 6 quite quickly!

Of course Geek is dreaming up game ideas a-mile-a-minute and some of them sound pretty cool!  So we might just have to spend winter break building a prototype of one (or more!) of those…  Sounds like fun! 😀

In any case, thanks to those of you who helped spread the word about the kickstarter project and who have offered your friendship, encouragement, and advice as we learned Unity3d and built the prototype.  We had a great summer and learned a ton.


– Dad

Working at Home – some tips

@noel_llopis (who’s recently a new dad – congrats!) tweeted a link to this excellent and funny post on working from home:  “How to work from home without going insane” and then queried for tips from others.

Having worked at home as a software developer for most of the last 22 years through two new babies and 11 years with a stay-at-home mom and growing children, I have a few tips I thought I’d offer.

In outline:

  1. make sure spouse knows how costly interruptions are
  2. schedule specific times to give spouse a break with new baby
  3. must have an office with a door, possibly improved.
  4. don’t let work consume all waking ours; have a schedule.
  5. teach older kids that a closed door means you are working and that this work earns the money that buys us food and such and that interruptions are expensive.  Then communicate the schedule of breaks to them (motivates them to learn to tell time :)) and give them some positive time at each break.
  6. bring enough supplies into your work space so you don’t have to leave for “short breaks to refuel” which are too torturous for small kids to understand.

Number one is probably the most important place to start.  I explained to my wife that it can take as much as 30 minutes for me to load the program I’m working on into my head where I can then work on it.  And that an interruption feels like a painstakingly constructed house of cards coming crashing down; not only have I lost the 30 minutes of load time, it’s also very defeating to fall back so far and have to start all over and this can make it cost way more than the 30 minute load time.

Number two was key when Geek was born.  He was born with undiagnosed reflux which means that he almost never slept more than 20 minutes before he woke up screaming.  (a pair of foam ear plugs in my pocket for much of the first year, just to turn the volume down really helped).  It took a real team effort to stay sane through that first year.  But even in less stressful situations, there are just things that are so much easier to do when not holding a baby.  So my wife started coming to the office and asking if I could “hold him for just a minute” while she _______.   Each one of those things seemed very quick to her – just three minutes! – but they required the 30+ minute reload for me and so were terribly destructive of productivity.   We figured out that having a schedule of breaks worked well for both of us.  If she knew that she’d get a break of X minutes at 10:30am and 2:30pm, then she would put off those things that were easier without the baby until then.  It was also easier to hang on through the screaming knowing you had a break coming at a specific time.  I actually worked half time for the first 6 months because of the reflux, but that’s a different story.

Number three is about creating an environment where you can actually do the highly cerebral work that is programming – noise being the biggest issue for me.  An office space with a door was an absolute requirement.  In my case replacing the cheap hollow-core interior door with a solid core door and a threshold to close the gap under the door was very helpful in reducing the sound transfer.  I also learned to program with music playing, which helped provide covering noise.  For me the music has to be music that is very familiar so my mind doesn’t need to attend to it.  Some people need exclusively instrumental music.  Some people can do headphones (this wasn’t something I learned how to do until I had to work in a cube for a couple of years (shudder)).

Number four is about sanity.  It is really easy to slide into working all the time when you work at home.  This will feel really productive for a time, but in the long run it’s bad for your marriage and your productivity.  A mental break from time to time can really increase productivity when you are working.  If you are billing hourly there is another dangerous trap to avoid: it’s easy to start converting everything into ‘lost wages’ and so a 2 hour movie date “costs” you 3x your hourly rate for travel time and the movie and so you can start skipping family stuff because “I need to be working.”  Suggest you avoid this path to insanity and a broken marriage.  Lower your monthly expenses (cheaper house or car, cancel cable tv, whatever works!) instead. And, as I’ve suggested in a previous post, put a cash-flow savings account in place as soon as possible to provide a buffer that frees you from this financial stress.

Number five is for when your kids get old enough to come to your door and open it because they know you’re in there…  🙂  This one will take a few repeated lessons for them to get it, but the important thing is to be cheerful when you have the discussion (i.e., opening the door and venting your frustration at being interrupted makes both of you feel badly in the end – try to avoid doing that).  So patience while this learning process happens is critical as is teamwork with your spouse who will have to reinforce and help enforce the “door is closed, don’t bother them unless it’s an emergency” rule.  It’s also important to help define what an emergency actually is, how to look at the clock and know what time it is and when the break is coming, and so on.  This is also an opportunity to start teaching lessons around “where does our food come from?”  “How does one get to live in a house?” “Working earns money which can then be used for food, and other things?” and even some discussion about what it is you do for a job and why it’s interesting and what the challenges are.  All part of a well-rounded education for your children.

Number six is about reinforcing the clear dividing line between you being “at work” and “on break” so that kids (and spouses!) are clear about when they can talk and interact with you and when then can expect you’ll be up for some fun (or available to help).  Some people need this more than others, but I find that with a family it helps to have a clear “signal” for them.  To this end, I got a pitcher for water and a large quality thermos for hot drinks so that I wouldn’t need to go refill until my next scheduled break.  The bathroom is obviously trickier and that’s about getting a house with the right configuration, when possible.  Some kind of tupperware for snacks and you’re set for uninterrupted work sessions with no false “mini-breaks” which are too difficult for small kids to distinguish from real breaks.

On the house layout issue:  clearly choosing the right house for stay-at-home work with stay-at-home spouse and growing children can really help.  Not always possible, but some things to look for/consider:

  1. Having the work area be on a floor separate from the family area is really helpful.  Above rather than below, if at all possible (running feat on your ceiling can be difficult to ignore!).
  2. As noted, having a bathroom accessible to the office space that doesn’t involve becoming visible/available to the family space is very helpful for avoiding false “BREAK TIME!” excitement and subsequent disappointment or frustration.
  3. type of construction is important.  The best I’ve had is old lathe and plaster – much better sound deadening than sheetrock covered interior walls (which generally also have no insulation).  If you’re making your own space, resilient channel may be used to fasten the sheetrock to the studs to give greater sound isolation.  I’ve heard that the shredded “old blue-jeans” eco-groovy insulation is actually better for sound deadening than the pink fiberglass stuff and so even interior walls may be insulated to help isolate them audibly from living areas.
  4. test a potential new house:
    1. go into the proposed office space after asking the kids to run around screaming in the play/family space (they’ll love being asked to do this!).
    2. go into the proposed office after asking older kids (or spouse if you plans to be there long enough the your younger kids will grow up) to run up and down any stairs in the house.
    3. Have spouse pretend to talk loudly on the telephone while walking around in the family space while you are in the office.

One mistake I made in one house was to put my office in the basement because it was quieter and on a different floor.  Bad idea for a guy from Hawaii;  Cold and dark.  Very gloomy.  Remodeled part of the attic with a dormer and windows and moved myself up there for dramatic mood/productivity improvement.

My current setup involves having some acreage and some space in a wooden barn which I remodeled into office space – this is really good in many ways.  The 150 foot “commute” is just long enough to get myself into a work head-space and the sound issues are 100% gone.

I hope some of this was helpful.  If you have other tips, feel free to add them in the comments!


– Dad

Getting things done…

Recently I was feeling stressed out by how many projects I was working on at once and realized that I not only was I feeling stressed out, I wasn’t completing projects effectively.  Time for a change!

Like many people, I make lists and the lists are long, overwhelmingly long!

I have new ideas in bursts where I’ll wake up in the middle of the night and have to write down 5 ideas (2-3 of which will be garbage, but that’s the middle of the night for you :-)) [1].  Or sometimes in the shower – BAM! POW! ZIP! ZOOM! Good ideas happening so fast I don’t want to stop taking a shower for fear of stopping the flow of ideas; but if I don’t start writing them down I’ll start forgetting some of them – aeii! [2] Anyway, the point is, I have too many ideas. Makes the lists too long, waaay too long.

After some thought I came up with the following three steps to rein things in:

  1. Divide the list of projects into two lists: a) Hobby projects and, b) entrepreneurial projects.  The former are things that I don’t expect to turn into “products” that will bring in income while the latter are ones that I hope will do just that.  I’m trying to move from a services indie lifestyle (contract software design and development) to a products based indie lifestyle (SAAS as well as Mac & iOS apps).
  2. Sort the entrepreneurial projects by time to completion, with shortest first.
  3. Only work on one project from the entrepreneurial list at a time, period! no excuses!

The idea is that no idea is going to make money if you don’t ship it! (see:  Without execution, an idea is worth max $20 ).  So the goal is to ship products, the sooner the better.

Now, when I did this sort and divide the product that came up first on the entrepreneurial list was one that I didn’t think was very likely to make money.  No problem!  If it’s not likely to make money, then it belongs on the hobby list! Problem solved.

Then the last step is really key for me – by only working on one project at a time I reduce the stress of dividing myself over too many projects and I am more likely to actually ship something! Letting myself work on an item from either list lets me work on things that are pure “fun” when I’m mentally not in the headspace for a “work” project or when I’m stuck on the work project and need to step away from it for a bit to let my background processor neurons work on it.

Now you might ask, what happens if you want to work on a project down the entrepreneurial list more than the one at the top of the list? Well, there are three ways to skip to something down the entrepreneurial list:

  1. Finish the ones before it on the list!
  2. Rein in scope for the one down the list you want to skip to such that it can be completed sooner than the ones currently before it on the list.
  3. Cancel the projects before it on the list and move to hobby list or delete them entirely.

Obviously the first option is the best because it means we shipped something! Number 2 is good because often projects can be scoped down into a phase/version 1 and the rest saved for a version 2.  Pulling in scope gets things shipped sooner, so encouraging this is good.  Now number 3 is hard to do for ideas that I think are “good” and that’s as it should be – if they’re good, then I should just execute and ship! If they aren’t good, well, fine, what are they doing on this list anyway? 🙂

So, does this work?  Well, I haven’t been using this approach for very long (about a month?), but so far I’ve shipped one product (well, it’s in the Mac App Store approval queue), moved one project to the hobby list from the entrepreneurial list because it was fun but unlikely to make any money (I’m still working on it when I have done enough “work” and get some recreational programming time), and I’m tightening the definition of one near the top of the list to pull it to the top of the list.

And I’ve felt a lot less stressed out.  There is no longer the question of “what should I work on today?” The answer is always, the current project or, if I’ve just completed something so the question might be “what to work on next?” the answer is equally easy:  the next project on the list.


(1) I learned long ago that writing them down is the only way for me to avoid spending the rest of the night mentally “spinning” around the ideas expanding on them and trying to avoid forgetting them – the result being very little more sleep.

(2) I need to get one of those waterproof note taking setups for in the shower that I’ve heard some idea guys have.

Being “Indie” – some thoughts and advice

This isn’t fancy or a formal essay just more of a ‘jotting down some thoughts I had after reading a few blog posts a month ago and then a few recent tweets’.  Maybe you’ll find something useful here.  I hope so.


There have been a few blog posts lately on being “Indie” mostly in the software game developer’s net circles and I wanted to put down some thoughts I had on the topic after >20 years as an independent software design & development consultant.  In particular, a scary tweet by an indie developer who ended up in the hospital due to stress from taking on too much work and another tweet by a fellow who was noting the feast or famine nature of consulting work as an independent.

This feast and famine roller-coaster characterization rings very true and the nature of this type of dynamic is such that you can easily end up feeling like you can never say “no” (as your inner voice of fear says, “but this might be the last contract that shows up for a year!”).  This can devolve into a genuinely dangerous reality such as the tweeter who ended up visiting the hospital.  For others it’s been completely debilitating back pain.  Family time can easily be eroded by this pressure and I once when I was younger I found myself calculating the cost of going to a movie based on the “loss” of billable hours : “fancy dinner and a movie?  Let’s see, $100 for nice dinner & dessert, $25 for the movie, $40 for the baby sitter, 1.5 hrs for dinner, 2.5 hrs for the movie, 1.5 hours driving time, that’s 5.5 hours of lost work @ $100/hr… so all together that’s more than $700 for dinner & a movie!  *Crazy*!!! ”  Be funny if it wasn’t so sad.  🙂

continue reading…

The Indie Challenge – Retrospective for a New Year

Explores the question: “Why is it easy for me to motivate, focus and do excellent work for clients but so difficult to do the same for my own projects?”

And asks: “If you are an Indie dev, what do you use to pick which project to work on next? How do you decide?”

I’m using “Indie” here to refer to an independent software development and publishing venture.  I’m also an “Indie” in the sense that I run my own freelance contract software design and development business and have for 20 years.  But for the sake of this discussion, think of “Indie” in the former sense – a small business owner creating products to publish.

This week with Geek & the Mom being gone, I’ve had a lot of time alone and there’s also been a break in client work until the new year. This should have been a perfect time to make a bunch of progress on entrepreneurial projects!  In particular, I should have spent this time working on the current game project.  Sadly, I haven’t done much – it’s been just impossible to sit down and get productive! Grrrrr.

Thinking about it, I realized that this situation describes much of the last year:  ideas, desire to build them, not that much progress.  Now there are some complicating factors and I’ve been letting myself off easy because of them, but it’s been a while now and surely I should be ready to get back into the game by now

So, given this failure to be productive this week, I spent some time yesterday and today doing some self-analysis and trying to figure out what’s going on. The question I wanted to answer:

Why is it easy for me to motivate, focus and do excellent work for clients but so difficult to do the same for my own projects?

If it weren’t for how effective I am for clients, I might worry that I’m just lazy.  But I rock-n-roll for my clients and they are super happy with the work I do.  Ok, so it’s not that.   Maybe I’m sick of programming after 20+ years at it and it’s time to find something else to do?  Then I think about how much fun I had on the client project I just finished two weeks ago and how much I feel like I want to go program; so I don’t think that’s what’s going on.  What could it be?

Then I remembered something I read in Switch: How to Change Things When Change Is Hard by Chip & Dan Heath that really struck me at the time and seems 100% applicable to the indie situation I’m in.  In this book the Heath brothers use the terms Elephant and Rider for the two sides of our brain: emotional and rational, respectively.  These terms are from  The Happiness Hypothesis: Finding Modern Truth in Ancient Wisdom by University of Virginia psychologist Jonathan Haidt (which I haven’t read).

“Elephant” refers to the emotional side – it’s big and strong and can overpower the rational but it’s also “lazy and skittish, often looking for the quick pay-off (ice cream cone) over the long-term payoff (being thin).”  The “Rider” is “perched atop the Elephant and holds the reins and seems to be the leader.”  Unlike the Elephant, the Rider thinks long-term,  plans and thinks beyond the moment.

That said, the Elephant has some enormous strengths and the Rider some crippling weaknesses.  As they say in the book, The power of emotion (love, compassion, sympathy and loyalty) are powerful forces – “the Elephant is the one who gets things done.  To make progress toward a goal, whether it’s noble or crass, requires the energy and drive of the Elephant.”   The Rider’s weaknesses center mostly around the problem of over-thinking, or spinning one’s wheels.  The Rider tends to over analyze and have trouble making decisions despite hours of contemplation.

As an aside, I think that the Elephant echos what Seth Godin calls the “Lizard Brain” and a lot of the things the Heath brothers talk about in Switch match up with things Seth Godin says in his books and on his blog.

In any case, back to the Indie Challenge.  In chapter 3 of Switch, the Heath brothers talk about how “the status quo (or what you’re used to) feels comfortable and steady because much of the choice as been squeezed out.”   To me this maps to client work.  The client is making the decision to do a particular product/project, they often have a vision of what they want and the only decisions I generally have to face have to do with the best way to implement their vision – the kinds of decisions I’ve been making for client projects for more than twenty years; generally easy stuff for me to do.

In this next quote from Switch they are talking about how to make change which for me is the change from doing less client work to more Indie effort (bold emphasis mine):

Change brings new choices that create uncertainty … and ambiguity is exhausting the Rider, because the Rider is tugging on the reins of the Elephant, trying to direct the Elephant down a new path.  But when the road is uncertain the Elephant will insist on taking the default path, the most familiar path.  Why?  Because uncertainty makes the Elephant anxious.  And that’s why decision paralysis can be deadly for change – because the most familiar path is always the status quo.

Without going into the entire Switch book (I recommend it – very interesting), the point is that as an Indie developer, I have tons of ideas – way more than I can possibly do – and I think that’s the problem.   The Rider doesn’t know which of them will be most successful, or even which will be successful at all!   And thus, I’m effectively in the situation in the quote above:  the Rider is completely exhausted by the uncertainty and ambiguity and the Elephant takes over and says, well, client work is the path that’s fed us for so long, it’s the status quo, the one that will have a check arrive soonest and most certainly – that’s the path we’re taking.

So, what I as an Indie need is a way to accurately evaluate which idea to work on and remove or reduce the uncertainty and ambiguity of the situation.

So initially I thought, well, maybe I just need to pick one and somehow force myself to finish it before I allow myself to work on anything else.   That’s what I’ve been trying for a few months now, and this has sort of worked; I’ve been able to not start any other projects, but the one I picked isn’t moving along very well (painfully slowly in fact).

So I need a new plan.  Maybe find a mentor – someone whose opinion I respect and who has done software products before successfully – and ask them to listen to a menu of ideas and help guide me in the selection of which one to do next.  I have one guy in mind, but don’t know if he’s interested.  We’ll see what happens.

Well, if you didn’t get bored by all this self-analysis and got this far and are an Indie dev, what do you use to pick which project to work on next?  How do you decide?

I’d love to hear your thoughts in the comments, or write a blog post on it and add a comment here pointing to it!

Good fortune to you all in the coming new year.


Without execution, an idea is worth max $20

I like this post by Derek Sivers.

To me, ideas are worth nothing unless executed. They are just a multiplier. Execution is worth millions. Explanation:


GREAT EXECUTION = $1,000,000

To make a business, you need to multiply the two.

The most brilliant idea, with no execution, is worth $20.
The most brilliant idea takes great execution to be worth $20,000,000.

That’s why I don’t want to hear people’s ideas.

I’m not interested until I see their execution.

I like this because it reminds me to get going and DO something already.  Those ideas keeping me up at night bouncing around in my skull aren’t going to be worth anything or result in anything except loss of sleep if I don’t actualize them.  Also, you don’t have to sit around waiting for the perfect brilliant idea!  Got one that’s even just “so-so” or “good”?  Execute well and it’s still good enough to do well enough financially to fund the next idea’s execution, and that’s what it’s all about, right?