SEP IRA

Archive for February, 2008

Question: Can I open a SEP IRA if my wife has a 401k at work?

My wife makes over $125k per year and receives a w-2 from her employer. She contributes to a 401k through her employer. I am a self employed consultant, sole proprieter with NO employees and receive 1099’s from my clients. I earn about $80k/year. I know any standard IRA Contribution by either of us is not tax deductible since she is in the 401k but if I open a SEP IRA are my contributions, tax deductible? Also, can I still open a SEP IRA before the filing deadline of April 15?

Answer: Yes, You can
the max you could contribute to your SEP IRA is 49,000.00
Your wife could max out her 401k at 16500.00

Question: What happens to the CPA who does your taxes wrong?

I had my sister in laws CPA do my taxes for 2004, 2005 and 2006. Well in 2007 I got a notice from the IRS saying I owed back taxes for all those years. I had a certified CPA look at thoes back taxes. He found that the old CPA had added my SEP-IRA from work as income i had borrowed. I never borrowed from my SEP-IRA in those back years. I’ve tried contacting the old CPA, which she took one of my calls and never called me back. She changed her number. What can I do?

Answer: My tax preparer’s policy is that if he makes a mistake, HE pays the penalty and interest. If she is really a licensed CPA report her to the licensing agency. You could take her to small claims court to get the money. Also, it is clear on my tax returns who prepared them. Is her name on them anywhere? Did you check the return before you signed it? Good luck..

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If you are the employer setting up a SIMPLE IRA plan, you must know all the SIMPLE IRA Rules. If you are an employee participating in the employer’s SIMPLE IRA plan, you should also know the SIMPLE IRA Rules. SIMPLE IRA Rules are thought of as more complicated than SEP IRA Rules because SEP IRA Rules are very similar to traditional IRA rules whereas SIMPLE IRA Rules are considered more of a 401k type of retirement plan.

Understanding SIMPLE IRA Rules

A SIMPLE IRA Plan is a tax favored retirement plan for small employers and self employed business owners. When an employer wants to offer some type of retirement plan or benefits for his or her employees and a 401k plan is too large and complicated, a SIMPLE IRA plan may be just the solution.

Rules of SIMPLE IRA Contributions

There are many ways an employer can set up his or her Simple Ira Plan for the employees. Contributions for the Simple Ira Plan can be in the form of:

• salary deduction contributions

Employees can choose to have their salary deducted and contributed in the Simple Ira Plan for retirement. Salary reduction contributions are often referred to as “elective deferrals”.

• matching contributions

Unless the employer chooses to make nonelective contributions to the Simple Ira Plan, the employer must make contributions which are equal to the salary reduction contributions the employees choose. Each employee can choose different percentages of salary reduction and SIMPLE IRA Contribution amounts.

• nonelective contributions

Nonelective contributions to SIMPLE IRA Plans are sometimes preferred to matching contributions. Nonelective contributions to SIMPLE IRA Plans can result in less money out of the employer’s pocket.

What are the Simple Ira Rules on taxable distributions?

Generally, distributions or withdrawals from a Simple Ira Account are fully taxable as ordinary income. Any early withdrawal amounts or early distributions will be subject to tax as well as penalties the same way other types of IRA accounts are subject to.