SEP IRA

Posts Tagged ‘finance’

Question: Simple tax question about Stocks and Roth IRA’s.?

A simple question but I can’t find the answer. If I get some stocks/efts or a Roth IRA and don’t sell any shares, what taxes do I pay?

What if I don’t reinvest dividends, if I just hold on to the stocks. Do I only pay when I sell?

Answer: Yes, you pay when you sell, except in the case of some mutual funds, where you may incur a tax liability before redeeming shares. Some ETF’s also have different tax treatment- the gold and silver funds, where they actually hold bullion work differently than stock ETF’s.

You will get end of year statements from your Broker.

Also, it depends how long you held the investments- some may be considered short term capital gains…

Finance & Investment Tips : What Is a SIMPLE IRA Account?

Question: Why is there a SEP IRA compensation limit?

I am at a new company and they offer a SEP IRA plan for me to contribute to. I
was reading over the rules for a SEP IRA and I had a question about the
Contribution limits. The rules I saw for 2006 show that a person can contribute
is 25% of their compensation or $44,000. I saw there is a salary cap of
$220,000. I was wondering why there is a salary cap that high because $44,000
is 25% of $176,000. Is there a reason for the salry cap and if there is, what is
it?

Thanks

Answer: SEP-IRA Deducton and Contribution Limits
Today’s tax question comes from D. Singleton in Texas. He asks:
“Your article SEP, SIMPLE, Retirement Plan Contribution Deduction contains the following quote: ‘Limits: Your maximum Contribution to a SEP-IRA is 20% of your self-employment income or $42,000, whichever is less.’ Shouldn’t this be 25%? Everything else I’ve read says 25%. Please clarify.”

You can contribute 25% of your wages to a SEP-IRA, if you are an employee participating in your employer’s retirement plan.

If you are self-employed, however, you do not have wages. Instead, you have net profits from the business venture. Self-employed people can contribute 20% of your net profits* up to $42,000 (increases to $44,000 for 2006). Now net profits for the SEP-IRA are calculated differently. You take your net self-employment income and subtract one-half of your self-employment taxes. The resulting “net net” self employment income is then multiplied by 20% to get your Contribution amount.

This lower 20% rate is well-documented in IRS Publication 560, Retirement Plans for Small Business. See the section on Contribution Limits, and scroll down to “Tax treatment of excess contributions.”

J.K. Lasser’s Your Income Tax has an excellent chapter on retirement plan options for self-employed people. You will want to read chapter 41 of the JK Lasser book to learn more about SEP and other retirement plans.

Fidelity Investments has an excellent SEP-IRA calculator to determine your maximum Contribution. I am in no way recommending you invest through Fidelity. I just like using their calculator.

One final tip. You have until your final deadline, including extensions, to contribute to a SEP-IRA for last year. So if you file an extension, you will have until October 16, 2006, to fund your SEP-IRA for last year. However, you do have to fund the SEP before you file your tax return. If you don’t file for an extension, the last day you can contribute to a SEP would be April 17, 2006.

Retirement Accounts Could Boost Treasuries

Question: Taxes SEP IRA-Withdrew 12,000 dollars?

I withdrew 12,000 dollars from my SEP IRA. Im 20 years old, and I live in FL. How much in taxes am I looking at paying. It fidelity and everytime i withdrew the money from the SEP IRA, i had the option to pay 10 percent from how much i withdrew, and i did.

Answer: There is a 10% early withdrawl penalty on distributions from an IRA, and other qualified retirement plans, prior to reaching age 59 1/2. You also pay taxes on the distribution, and the amount depends on your income and deductions. Contributions to retirment plans receive favorable tax treatment because they are for your retirment. If you take them out early, they are not for your retirment thus the favorable tax treatment is taken away=10% penalty.

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