SEP IRA

Archive for April, 2008

Question: I put money into a SIMPLE IRA as an independent contractor for two years. Is that okay?

I have not been able to find answers as to whether I need to re-route those two years, pay taxes on them, etc. I am now listed as an employee of the non-profit so this year is fine. I would prefer to go back to contractor status, which is an option, but I want to keep taking out a SIMPLE 403(b). Is that okay?

Answer: Since only an employer can setup a 403(b) plan, the only way you can get one is to be an actual employee. If you terminate fro the position, the option to make after-tax contributions is determined by the plan itself, not the IRS. Some plans (not many, but some) require you to withdraw your money upon termination and if you roll it over into another eligible retirement account you don’t have to pay the taxes on it. You’d need to refer to your company’s 403(b) plan to find out what options they provide.

For the basic description of and rules for a 403(b), see the IRS publication 571: Tax Sheltered Annuity Plans [403(b) Plans].

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