Investing Information

Rules for simplified member of staff annuity plans develop known as a sep plans - investing


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

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

1. Has not worked for the band all through three out of the last five years.

2. Has not reached age 21 all through the year for which donations are made.

3. Conventional less than $450 in compensation (subject to cost-of-living adjustments) all through the year.

SEP IRA aid to each worker for 2004 cannot exceed the minor of $41,000 or 25% of pay for W2 recipients (20% of earnings for sole proprietors). The SEP IRA giving limit goes up to $42,000 for 2005, and is branch of learning to cost-of-living adjustments for later years. SEP-IRA rules do not afford for bonus catch-up charity for those 50 years old or over.

A developing add up to of self-employed those 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 alter are 1) they can by and large add much more to a Solo 401(k) than they can under a SEP IRA, and 2) Loans are allowable under a Solo 401(k), but loans are prohibited under a SEP-IRA.

Example: Henry, age 52, a realtor acknowledged $60,000 in compensation from self-employment pay packet in 2004. For 2004, he could add a ceiling 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 has a handful of employees, the SEP IRA may be your best alternative as a retirement plan that is low-cost and austere to operate.

About The Author

Daniel Lamaute, CEO of Lamaute Capital, Inc. (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 giving might be under assorted plans.

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