SEP IRA

Archive for July, 2006

Question: As a 1099 employee, my accountant has mentioned to me I should open a SEP?

What is a SEP? How would a 1099 employee (I have become incorporated as well) benefit from a SEP, and how is a SEP different from the IRA I already have? Is there a tax benefit?

Answer: You get to put more into a SEP than an IRA. For 2007 regular IRA is limited to $4,000 Contribution ($5,000 if age 50 or older). SEP Contribution limit is lessor of 25% of your compensation up to $225,000 or $45,000. As to establishing one, hopefully your accountant could help with that directly or knows someone in financial services to recommend. As to tax benefit, the more you can contribute, the lower your AGI.

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Browne And Associates LLC

SIMPLE IRA Contribution Limits, Continued

When must the employer provide annual SIMPLE IRA Plan notices to employees?

All eligible employees (including both employees who are already contributing and employees who have not yet contributed) must receive

immediately prior to the 60-day election period before the effective date of the Plan (for the first plan year, the effective date must be no later than October 1), and, thereafter, 60 days before the start of each year (i.e., November 2).

The required notices can be located in the SIMPLE IRA Employer IRA Agreement.

Example: ABC Company establishes a SIMPLE IRA Plan, effective October 1, 2004. The employer notifies employees regarding the 2004 Plan year by providing copies of Appendices A, B and C to employees on or before October 1, 2004.

The employer must then notify employees on or before November 2, 2004 for the 2005 plan year and by every November 2 thereafter.

Note: These notices must be supplied by the employer each year to all eligible employees, regardless of whether there are any changes to the Plan. Changes to the plan (for example, the matching formula) may not be made for any year unless the notice is given in a timely fashion.