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.

---

Missleading Fund Names Wreak Havoc On Investor Returns!

Mutual fund managers use fake fund names to part you from your money such that you cannot judge what a fund does by its name. Many funds... Read More

Numismatics are for Collectors, Not Investors

As a precious metals investor, you may heard much about numismatic and "semi-numismatic" coins, particularly the St. Gaudens $20 double eagle gold coin. While coin collecting can... Read More

Bad News - Why The Financial News Media Can Cost You Money!

The communication innovations we have around us today like the internet, financial newspapers, and special interest television channels focused on investing like CNBC are a high speed... Read More

Investing in Car Dealerships: How to Do It Right

The financial characteristics of the automobile dealership are attractive:". . . moderate growth and risk and high returns. Franchised new car dealer revenues have grown at a... Read More

What If You Absolutely Positively Could Not Lose - Would You Play the Stock Market?

Seniors on fixed incomes face a unique problem. Where do they invest their savings to get maximum return on investment with limited risk? Some of the traditional... Read More

Buying a Home - Your BIGGEST Investment

This column has often focused on intangible investments like stocks that a young investor might hold in their portfolio. While these are one of the most important... Read More

Why You Need To Buy and Sell Gold Coins (Part 5)

Grading coinsThe condition of a coin is commonly summarized by a grade. Because the value of collectible coins often varies dramatically with grade and overly generous grading... Read More

What Is A Fair Market Value, Really? If Youre Going To Trade, Be Sure Its Worth It!

I've been involved in online trading, specifically with stock and index options, for several years. In this time, I've spent a great deal of time thinking about... Read More

How to Buy to Let

Find out everything you need to know about buy to let. Learn what to buy, where to buy and what not to buy. All this information about... Read More

Annuity Investment Guide

While there is not a lack of information on annuities, there certainly is a lack of good information. In an age full of information, we are constantly... Read More

Angels, Are They Real?

They're real, but few survive. High risk investing is dangerous to your bank balance. The process toward extinction is that an angel risks money in one venture.... Read More

Buying Florida Investment Properties and Where Its Hot

Relaxing in Style: Florida Investment PropertiesIn Florida, relaxing in the sun and sand is a way of life. There's no better way to experience a slice of... Read More

Which IRA Is Best For You?

An Ira is one of the greatest ways to save on taxes currently and accumulate money for the future.For individuals three types of IRA's will normally come... Read More

Rolling your 401k: Contributory IRA vs. Rollover IRA

In an ideal world you would start your working career with a great company in your early 20s, steadily climb the corporate ladder, retire at age 65,... Read More

Landlording 101, Tricks of The Trade

Looking Inside Your Tenant's Mind Basic Mind-Reading Report 101 for LandlordsIt goes without saying but I will say it anyway. The better you understand your tenants and... Read More

Day Traders and Swing Traders and Options? Maybe!

Typical day traders and swing traders look for stocks with quick, short term movements, and are not in the business of holding positions overnight let alone a... Read More

Making Your Investment Dollars Work for You

Investments are scary for some people, especially those who have never invested before. We grow up hearing horror stories about how this person or that person lost... Read More

How Eating Bitumen Made Me a Better Stock Trader

Stock market trading is a fascinating activity.There are so many layers to it. And so many paths that you can go down.Soon after we first got interested... Read More

Investing Offshore for Retirement

As an expatriate you are in a privileged savings and investing position. Make the most of the options available to you while you can, consider investing offshore... Read More

Creating Momentum with Options - Pro and Cons of At-the-money, In-the-money, and Out-of-the-money

To create momentum in your options trading you need to understand the advantages and disadvantages of at-the-money options, in-the-money options and out-of-the-money options.An at-the-money option has both... 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... Read More

Investing in New Zealand - Learn how to Find Unique Investment Opportunities

Investing in New Zealand might be much easier than investing in other western countries, thank to the excellent infrastructure, the low taxes and the assistance of the... Read More

Investing: The Art Of Making Your Money Work For You

There is a lot to know about investing. It all depends on what type of investing you are interested in as well. There are many different types... Read More

Day Trading Strategy or Stock Trading Software? The Way You Pick Stocks Affects Your Results

The trading method you employ to approach the stock market can make a big difference in your results.Stock trading is a very competitive field and in order... Read More

How to Invest Your Money

Think carefully on how to invest your money because if you make wrong decisions it could cost you dearly. There are many ways in which to invest... Read More

The Myth of the Earnings Yield

AbstractA very slim minority of firms distribute dividends. This truism has revolutionary implications. In the absence of dividends, the foundation of most - if not all -... Read More