SEP IRA

Archive for August, 2009

Question: If you set up an LLC to fund from your SEP-IRA to buy real estate as an investment (checkbook IRA style) how?

do you do this?

I can set up an LLC easy enough, but how do you work this so that you don’t get early distribution penalties/fees?

I want to buy a house using SEP-IRA money, which would be totally out of the question is I use a custodial company or pay for this outside (costs thousand$). It should be very simple, just need to know the hows.
Anybody?
not to live in, strictly for investment, collect rent, put it into IRA, write off taxes

Answer: You can’t do this if you are going to live in the house. The entire distribution would be subject to the 10% early distribution penalty under Section 72 and it would also be subject to income taxes.

If the house is an investment, you can’t do it directly. Not to mention that it would be a tax-inefficient way to invest your IRA money. There are a few banks that serve as trustees for this type of IRA, but not many, and they charge fees high enough that it wouldn’t be worthwhile.

I hope this helps.
Gary

Question: Should we continue to invest in an AXA-Equitable SIMPLE IRA just b/c the employer contributes to plan?

My husband (36) now works for a small business that only offered AXA-equitable SIMPLE IRA as an investment option. Our only other investment is a rollover 401k that is now sitting with Fidelity. Currently, his boss is matching a percentage of the contributions to AXA, but I still feel like investing in this is a bad idea. Everything I read about variable annuties either sounds bad or doesn’t make sense to me. Right now there is 60% in large cap, 20% in long term bonds, and 20% in int’l equity in this plan, and it’s losing money. Should we continue to contribute since his employer is also contributing or should we be sending whatever savings we can over to the old 401k that’s w/Fidelity?

Answer: It depends on the % match. Look at the overall performance of the investment. 1,3,5,10 years. and then add to that average the match %. What is the YTD return on the IRA this year?Any expenses?

Small Business Tax Advice – Travel Expenses & Retirement Contributions – Part 9 of 10

To use the worksheet you will need net self-employment earnings (which is generally revenues less expenses including any contributions made to the SEP IRA or profit sharing plan (Keogh) on behalf of employees but not for the business owner), one-half of self-employment tax (shown on line 30 of the Form 1040), and the percentage Contribution desired (up to 25%).

Contribution/Deduction Worksheet

(1) Plan Contribution rate as a decimal up to a maximum of 25% (for example 25% would be .25).

(2) Rate from line 1 plus one (for example, .25 plus one would be 1.25).

(3) Self-employed rate as a decimal (divide line 1 by line 2) .25/1.25 = 20.00%.

(4) Enter Contribution rate as determined from line 3 as a decimal (.20).

(5) Enter earnings. Estimate or use actual amount from line 3, Schedule C-EZ, or line 31, Schedule C, line 36, Schedule F, or line 15a, Schedule K-1 (form 1065).

(6) Estimate or enter amount for “one half self-employment tax” shown on line 30, on IRS Form 1040.

(7) Subtract Step 6 from Step 5.

(8) Multiply Step 7 by Step 4.

(9) Enter the smaller of Step 8 or $42,000 $41,000 in 2004). This is the maximum deductible Contribution. Enter the deduction amount for the self-employed individual as an adjustment to income (AGI adjustment).