A SEP IRA is a approach that may permit you to put distant more tax deductible dollars for position. For employers, SEPs are a ascetic way to launch a status draft for force minus several of the restrictions that use to other qualified policy and without the mounds of paperwork.
Here, however, we are going to articulate active how a SEP IRA could permit you to bar more than for status if you have self-employment income exterior of your job or have your own company. Business owners are both "employers" and "employees." For this discussion, we will presume that you are the only hand.
Note: If you are neck-deep in a conglomerate with partners or employees, the same percent endeavour is needful for all body who are over and done with age 21, have worked in the firm in at lowest possible iii of the past v eld and ready-made at least $450 (2006). Other technicalities may employ.
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The Rules
1. You can involve yourself up to 25% of your compensation, nonexempt to a peak. This top is indexed; for 2006 it was $44,000 and for 2007 $45,000.
2. Assuming the SEP IRA's tax yr is the calendar year, contributions can be made up until April 15th of the shadowing year, when the tax flood back is due.
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3. You can take part up until you are 70 1/2, but not forgotten.
4. Withdrawals formerly age 59 1/2 are subject to the 10% immature statistical distribution penalisation tax unless one of the exceptions apply.
5. You have to arrival fetching the booty out (RMDs) at age 70 1/2.
The Benefits
1. SEP IRAs are guileless. Essentially SEPS are big IRAs. There is severely flyspeck work.
2. They are supple. You can vary the amount you add all time period from cardinal all the way up to the year's top donation factor.
3. The entire effort restriction is indexed which allows much to be contributed all period.
4. Employer contributions are by and large not concern to FICA (Social Security tax), FUTA (federal severance tax) or profits tax deduction.
5. As an worker of your SEP IRA, you maybe can take home deductible contributions as capably. These contributions have the self membership margins as conventional IRAs. For 2006 and 2007, this is $4,000. If you are age 50 or over, you can add another $1,000. However, if you generate too such money, your involvement largest is either belittled or eliminated.
6. You can be a participant in a qualified propose (for example, a 401(k)) at manual labour and motionless be able to involve yourself to your SEP IRA based on your outside funds. Again, this is a drive of your wealth and taxable to the phase out rules discussed down the stairs.
Phase-Out Rules
1. First, these rules utilize if you are a participant in another well-qualified invent. Note that having a SEP IRA puts you in this aggregation.
2. Your takings and your tax submission snob value find out the phase-out. Technically, this is "modified used to total income" (MAGI) which is focused gross takings near confident adjustments. See your comptroller.
3. If you record a conjoined tax arrival and have a MAGI of $75,000 or less (2006), you can create a swarming worker contribution: $4,000 or $5,000 if you are 50 or elderly. If your MAGI is complete $85,000, no partaking can be made. A uncomplete try mathematical statement determines the highest acceptable try for incomes involving $75,000 and $85,000.
4. If you profile a individual tax return, you can breed a inundated SEP IRA hand endeavour if your MAGI is $50,000 (2006) or below and no input for incomes of $60,000 (2006) or more than. Again, for incomes linking these numbers, a formula determines a partial endeavor restraint.
5. If you are married and data file a asunder return, the phase-out starts at an earnings of nil. Adjusted overall return of $10,000 or more than does not permit any gift.
These benefits and rules of SEP IRAs are supported on my considerate and cannot be nearly new as tax suggestion. The straight-laced intend will be on your goals, income, tax submission status, and your group action in other well-qualified tactic. It would be first-class to sit downward near your accountant and pecuniary individual and do the math on all your options.
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