Investing Information

Is a sep plan right for your affair - investing


A SEP is a exclusive type of IRA. Under a SEP plan the employer creates an IRA checking account for each eligible employee, hence the name SEP-IRA. A SEP is funded only with employer contributions. Employees do not make aid to their SEP-IRA retirement account. Any money that goes into a SEP certainly belongs to the employee. Thus, the worker has the right to take his SEP IRA balance money with him each time he stops running for the company.

Any size big business can ascertain a SEP, but the SEP retirement plan is utilized by and large by the self-employed and the small affair with few employees. The SEP IRA rules dictate that if the big business contributes for one employee, (i. e. , the owner), then the big business must add proportionately for all of the employees. With few exceptions, everybody who works for the big business must be integrated in the SEP. However, you can bar from participating in the SEP plan any person who:

? Has not worked for the band at some point in three out of the last five years.

? Has not reached age 21 at some stage in the year for which donations are made.

? Customary less than $450 in compensation (subject to cost-of-living adjustments) at some stage in the year.

SEP IRA assistance to each member of staff for 2004 cannot exceed the slighter of $41,000 or 25% of pay for W2 recipients (20% of pay for sole proprietors). The SEP IRA giving limit goes up to $42,000 for 2005, and is business to cost-of-living adjustments for later years. SEP-IRA rules do not endow with for added catch-up charity for those 50 years old or over.

A budding digit of self-employed folks with no employees are abandoning the SEP-IRA for a newer type of retirement plan called the Solo 401(k) or Self-Employed 401(k). The two main reasons for the change are 1) they can in the main be part of the cause much more to a Solo 401(k) than they can under a SEP IRA, and 2) Loans are permitted under a Solo 401(k), but loans are prohibited under a SEP-IRA.

Example: Henry, age 52, a realtor conventional $60,000 in compensation from self-employment earnings in 2004. For 2004, he could be a factor a greatest of $27,152 in a Solo 401(k) versus a greatest of $11,152 under a SEP IRA.

However, the Solo 401(k) does not work for businesses with employees. Thus, if your ballet company plans to hire employees or at present has a few employees, the SEP IRA may be your best array as a retirement plan that is easy on the pocket and clean to operate.

Daniel Lamaute, CEO of Lamaute Capital, Inc. (http://www. InvestSafe. com) specializes in backdrop up retirement plans. You may visit http://www. investsafe. com to contact a free calculator that will help you assess what your greatest input might be under atypical plans.


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