Sep Limits

A SEP is an IRA plan that can allow you to put more tax deductible dollars for retirement. For employers, SEPs are a simple way to establish a pension plan for employees without many restrictions that apply to other qualified plans and without the mounds of paperwork.

Here, however, we'll talk about how an IRA September could help you save more for retirement if you have self-employment income outside of your work or your own business. Business owners are both employers and "employees". For this discussion, we assume that you are the only employee.

Note: If you are involved in a business with partners or employees, the percentage contribution required is the same for all employees who are over 21 years, worked in the company in at least three of the last five years and at least $ 450 (2006). Other techniques can be applied.

Rules

1. You can contribute up to 25% of your earnings, subject to a maximum. This maximum is indexed, for 2006 it was $ 44,000 and $ 45,000 for 2007.

2. Assuming the tax year of the IRA in September is the calendar year, contributions can be made until April 15 next year, when the tax is due.

3. You can help until you are 70 1 / 2, but not beyond.

4. Withdrawals before age 59 1 / 2 are subject to tax of 10% premature distribution penalty unless one of the exceptions apply.

5. You must start taking money (RMDS) to age 70 1 / 2.

Benefits

1. IRA SEP are simple. Essentially SEPS IRA are great. There is very little paperwork.

2. They are flexible. You can vary the amount you pay each year from scratch all the way to the boundary of the year the maximum contribution.

3. The total contribution limit is indexed, which allows more to be paid each year.

4. Employer contributions are generally not subject to FICA (Social Security), Futa tax (federal unemployment) or withholding tax on income.

5. As an employee in September of your IRA, you can make contributions deductible as well. These contributions have the same contribution limits as traditional IRA. For 2006 and 2007 is $ 4,000. If you are age 50 or older, you can add another $ 1,000. However, if you make too much money, your maximum contribution is reduced or eliminated.

6. You can be a participant in a qualified plan (eg, a 401 (k)) at work and still be able to contribute to your IRA in September based on your income outside. Again, this is a function of your income and subject to the phase of the rules below.

Rules phase

1. First, these rules apply if you are a participant in another qualified plan. Note that with an IRA in September puts you in this category.

2. Your income and your tax filing status to determine the phase-out. Technically, this is "modified adjusted gross income (MAGI) is adjusted gross income with certain adjustments. See your accountant.

3. If you file a joint tax return and have a MAGI of $ 75,000 or less (2006), you can contribute employed full: $ 4,000 or $ 5,000 if you are 50 years or more. If your MAGI is more than $ 85,000, no contribution can be made. A partial contribution formula determines the maximum contribution allowed for incomes between $ 75,000 and $ 85,000.

4. If you are filing a single tax, you can make a full contribution in September if your employee IRA MAGI is $ 50,000 (2006) or less and no contribution to income of $ 60,000 (2006) or more. Again, on revenues of these numbers, a formula determines a partial contribution limit.

5. If you are married and file a separate return, the beginning of the phase-out income z.