SEP IRA

Archive for January, 2006

Question: Is there a deadline to “changing” a SEP IRA adoption agreement?

Company formed in 2006. We have a SEP IRA established for 2006 which employees with 0 years of service, so that the owner could be included. In 2007 we have employees and we were planning to change the adoption agreement to include employees who have worked atleast 1 year. Is it possible to do it? If so, should it have been done before hiring the employee or can it be done now also?

Answer: As a practical matter, the IRS would not like to see a situation where every year you amended the SEP to keep from including employees, but I don’t think they would do any thing about it. I have never seen one of those situations audited. The Form 5305 SEP adoption agreement is an IRS form that you simply keep with your corporate records and provide to the sponsoring company if they request it.

Jim Kirby, CPA/PFS, CFP, CFS

PS Are you sure you didn’t sign the new Form 5305 before the new emplyee arrived? Check your files again.

John McCain: Town Hall Meeting 09/17/08

1. California Trust Deed Investing: What is trust deed investing?

Question: Why would my employer pick a 401k over a SEP IRA?

Is it true that with a SEP IRA my employer would have to give all employees the same percentage he gives himself?

also…why would my employer agree to do the Safe Harbor matich? What’s in it for him?

Answer: Yes, that’s what a SEP is…he would have to provide most of his employers the same percentage in a Contribution as he would receive. A SEP really makes little or no sense these days….Don’t fault your employer for taking advantage of better plans that are available to him.

He does the safe harbor match rather than a straight 401k because he wants to avoid discrimination testing that would limit his Contribution amount if the employees didn’t participate. By choosing to provide a matching Contribution that is immediately 100% vested he gets to maximize his Contribution even if you (the employees) don’t choose to participate. That wouldn’t be the case with a regular 401k. He basically knows he can put in $20k into his retirement plan on an annual basis and the cost to him is 4% of the employees wages. A small business owner may have $500k in wages. 4% of that is $20,000. So, for putting in $20k to the employees (deductible by the way) he/she can put in 20k into her own account.

As you can see, that’s a much better scenario for the employer than the SEP. If your employer went that way then he/she would have been limited to 4% Contribution or $8k. Not smart…

But, keep in mind that with a Safe Harbor plan you benefit too….you get a match and it’s immediately 100% vested AND you get that match even in your last year of employment. If you have a normal match and you quit December 15…you forfeit the match for that year. Safe Harbor plans…you get that match.

celulares 4G