Rules for Simplified Employee Pension Plans better known as a SEP Plans

A SEP is a special type of IRA. Under a SEP plan the employer creates an IRA account for each eligible employee, hence the name SEP-IRA. A SEP is funded solely with employer contributions. Employees do not make contributions to their SEP-IRA retirement account. Any money that goes into a SEP automatically belongs to the employee. Thus, the employee has the right to take his SEP IRA account money with him whenever he stops working for the company.

Any size business can establish a SEP, but the SEP retirement plan is utilized mostly by the self-employed and the small business with few employees. The SEP IRA rules dictate that if the business contributes for one employee, (i.e., the owner), then the business must contribute proportionately for all of the employees. With few exceptions, anyone who works for the business must be included in the SEP. However, you can exclude from participating in the SEP plan anyone who:

1. Has not worked for the company during three out of the last five years.

2. Has not reached age 21 during the year for which contributions are made.

3. Received less than $450 in compensation (subject to cost-of-living adjustments) during the year.

SEP IRA contributions to each employee for 2004 cannot exceed the lesser of $41,000 or 25% of pay for W2 recipients (20% of income for sole proprietors). The SEP IRA contribution limit goes up to $42,000 for 2005, and is subject to cost-of-living adjustments for later years. SEP-IRA rules do not provide for additional catch-up contributions for those 50 years old or over.

A growing number of self-employed individuals 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 switch are 1) they can generally contribute much more to a Solo 401(k) than they can under a SEP IRA, and 2) Loans are allowed under a Solo 401(k), whereas loans are prohibited under a SEP-IRA.

Example: Henry, age 52, a realtor received $60,000 in compensation from self-employment income in 2004. For 2004, he could contribute a maximum of $27,152 in a Solo 401(k) versus a maximum of $11,152 under a SEP IRA.

However, the Solo 401(k) does not work for businesses with employees. Thus, if your company plans to hire employees or has a handful of employees, the SEP IRA may be your best choice as a retirement plan that is inexpensive and simple to operate.

About The Author

Daniel Lamaute, CEO of Lamaute Capital, Inc. (www.InvestSafe.com) specializes in setting up retirement plans. You may visit http://www.investsafe.com to access a free calculator that will help you estimate what your maximum contribution might be under different plans.

---

Options Education : Opinion versus Fact!

The most basic aspect of trading is learning to differentiate between what is FACTUAL and what is OPINION. If you stay interested in the financial markets long enough you will discover that there... Read More

Makin The Sauce

Let's face it, you're on a roll. After getting down to your attorney's office to sign the new Living Trust and then diligently tracking down your assets to fund the trust, you should... Read More

Investing and the Fear of Regret and Greed

People tend to feel sorrow and grief after having made an error in judgement.Investors deciding whether to sell or buy a security are typically emotionally affected by whether the security was bought or... Read More

Copy Cat or How to Use a Successful Trading System

How many books have you read about successful traders? How they did this or that and made a fortune and are still doing it. You say to yourself, "I'm going to follow his... Read More

The Three Legged Stool

My paternal grandparents were born near Lake Como, Italy. My grandfather learned how to farm, and he did just that until he died chopping wood at age 88. As a boy, I would... Read More

For Entrepreneurs A SIMPLE Plan May Be Best

Q: I own a small decorating business and I'll be the first to admit that I don't know anything about taxes or retirement plans. I'd like to set up a 401(k) or an... Read More

Mutual Fund Returns May Not Be As They Seem!

Arthur Levitt, during his tenure at the SEC, experienced many cases where the non-indexed mutual fund manager bought shares for their own accounts before the fund bought the shares. The fund's purchases drove... Read More

Investing Pointers for Neophyte Investors

If you know next to nothing, how do you go about the business of investing? The first thing you need to know about investing is, how much do you really know? If its'... Read More

Basic Options Terms

Options are good investing and speculative instruments. But options terminology may confuse even experienced investors. In this article we will take up some basic options terms.Option - A contract that grants the holder... Read More

Pros & Cons of Investing in Bonds

What are Bonds?A bond is a debt security, by which you are lending money to a government, municipality, corporation, federal agency or other entity known as the issuer. In return for investing in... Read More

Financial Planners

"Financial planners are like dentists: they may occasionally inflict pain, but in the end, you will be better off for following their advice!"Whoever wrote these lines must have either been a financial planner... Read More

Out-Of-State Investors Check List of Questions

The following lists of questions are suggested questions to ask before you plan to purchase residential real estate outside of your neighborhood.It's probably best to speak with at least three licensed real estate... Read More

401(k) Plans

I've been in and interested in the stock market so long (one year shy of forty years) I can remember when the mutual fund pages in my home town paper were just one... Read More

Shareholders Meeting Changing With Times

A significant number of corporations that settled accounts in the past year are ready to hold their annual shareholders meetings.In this year's meetings, more than 300 companies plan as their main focus of... Read More

The Economys Greatest Depression Downturn Ever Is Now Just A Few Years Away

What really controls the economy? Forget interest rates, forget deficits, forget the Fed, forget IRAQ, forget which party is in office. In fact, forget just about everything that permeates the news. The greatest... Read More

Trading Baskets Part I

Q. What is a basket?A basket is a group of up to 50 stocks that you can trade, manage and track as one entity.In another article, I wrote about a rather conservative method... Read More

Should You Put Your Annuity in an IRA?

Let me start by answering that question...if an annuity fits your investment objectives than there is no reason that an annuity should not go in your IRA. Okay all you smarty pants out... Read More

Before You Invest You Must Read This

It is important to answer the following questions before you begin to invest any of your money. The answers to these questions will help to guide you to when, what, where, and how... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #4

Can you concisely summarize your investment philosophy in a few sentences? My experience is that most people can't. The quotes that follow are diamonds that offer a real powerful education in the world... Read More

Why have Investment Plans for the Stock Market

If you do not have an investment plan in the stock market you are subject to impulses, urges, hunches, premonitions, strong feelings, greed, panic, fear, indecision, and just plain foolishness. In my opinion,... Read More

Choosing A Financial Advisor

With so many financial advisors trying to woo you with their qualifications and experience, how do find one you can trust your finances with? 'Trust' is the keyword here, as you will depend... Read More

The Past Does Not Equal The Future: Mutual Fund Returns!

A way that investors get ripped off and in a sense rip themselves off is based on the culture of performance in the mutual fund industry. If you stop and think about it... Read More

Justify Social Security ... Dont Save for Retirement

It is a common question when investors review their retirement plan-should we include social security benefits into our retirement income projections?It seems the closer an investor is to retirement, the more likely he/she... Read More

Variable Annuities

You know all the articles you read about annuities that have extremely high fees? And the ones that people lose a lot of money in? Well, these are better known as variable annuities.... Read More

Seven Investment Terms Everyone Should Know

For those who have never given their financial future a second thought, the term "Financial Planning" could be a scary one. Investments can be a smart way to invest money for your future,... Read More

Can Your Annuity Do This?

Okay, so I can tell you I have sat in front of countless numbers of people who have made mistakes when purchasing and owning annuities. And I have visited people who wish they... Read More

Oil and Gasoline Price Uncertainties

The Light Crude Continuous Contract hit an all-time high at $70.85 a barrel, while Unleaded Gasoline Futures spiked 50% or $1 a gallon on Tuesday. However, oil closed the week at $67.57 a... Read More

Reasons For Joining An Investment Club

Whether you're a novice investor or an experienced stock picker an investment club may be beneficial to growing your investment portfolio. This article explains what an investment club is, why you should have... Read More

Wit and Wisdom on Money, Wall Street and Success - Part #2

Here are ten more WISDOM packed GEMS that ooffer very unqiue insights to the world of trading and investing.These quotes promote a philosophy which is readily understandable and sometimes hysterical.In my 25+ years... Read More