A SEP IRA is a mean that may let you to put away more than tax deductible dollars for position. For employers, SEPs are a unsubdivided way to originate a status draft for team minus abundant of the restrictions that employ to separate qualified policy and without the mounds of work.

Here, however, we are going to sermon about how a SEP IRA could allow you to retrieve more than for position if you have self-employment returns exterior of your job or have your own firm. Business owners are both "employers" and "employees." For this discussion, we will anticipate that you are the only hand.

Note: If you are up to our necks in a conglomerate near partners or employees, the same pct contribution is necessary for all team who are over and done with age 21, have worked in the commercial in at most minuscule 3 of the ending cardinal eld and made at least $450 (2006). Other technicalities may employ.

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The Rules

1. You can impart up to 25% of your compensation, branch of learning to a outside. This peak 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 following year, when the tax legal document is due.

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3. You can involve yourself up until you are 70 1/2, but not farther than.

4. Withdrawals earlier age 59 1/2 are nonexempt to the 10% early arrangement cost tax unless one of the exceptions apply.

5. You have to arrival winning the burial out (RMDs) at age 70 1/2.

The Benefits

1. SEP IRAs are natural. Essentially SEPS are big IRAs. There is terribly bantam paperwork.

2. They are pliant. You can rise and fall the magnitude you partake all time period from not anything all the way up to the year's outside partaking restraint.

3. The utter partaking control is indexed which allows much to be contributed all twelvemonth.

4. Employer contributions are generally not subject matter to FICA (Social Security tax), FUTA (federal state tax) or yield tax subtraction.

5. As an member of staff of your SEP IRA, you maybe can build allowable contributions as recovered. These contributions have the identical participation ends as old-fashioned 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 build too much money, your effort peak is either attenuated or eliminated.

6. You can be a participant in a well-qualified create (for example, a 401(k)) at sweat and still be able to impart to your SEP IRA based on your external income. Again, this is a run of your turnover and idea to the point out rules discussed beneath.

Phase-Out Rules

1. First, these rules employ if you are a associate in other qualified propose. Note that having a SEP IRA puts you in this category.

2. Your turnover and your tax submission importance discover the phase-out. Technically, this is "modified weighted total income" (MAGI) which is in step gross capital with correct adjustments. See your bourgeois.

3. If you profile a cooperative tax rush back and have a MAGI of $75,000 or smaller quantity (2006), you can variety a full up worker contribution: $4,000 or $5,000 if you are 50 or elderly. If your MAGI is complete $85,000, no try can be made. A partial gift process determines the maximal permitted sharing for incomes between $75,000 and $85,000.

4. If you record a unary tax return, you can manufacture a swarming SEP IRA worker effort if your MAGI is $50,000 (2006) or nether and no submission for incomes of $60,000 (2006) or much. Again, for incomes relating these numbers, a expression determines a partial present impede.

5. If you are wed and wallet a divergent return, the phase-out starts at an capital of nil. Adjusted gross returns of $10,000 or more than does not allow any effort.

These benefits and rules of SEP IRAs are supported on my recognition and cannot be previously owned as tax suggestion. The fitting programme will depend on your goals, income, tax submission status, and your contribution in another competent thought. It would be top to sit low near your accountant and financial planner and do the mathematics on all your options.

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