A SEP IRA is a draft that may permit you to put distant more than tax deductible dollars for position. For employers, SEPs are a clear-cut way to open a position design for personnel in need several of the restrictions that employ to remaining qualified procedure and in need the mounds of work.

Here, however, we are active to speak around how a SEP IRA could permit you to stockpile much for position if you have self-employment revenue outer of your job or have your own business. Business owners are some "employers" and "employees." For this discussion, we will suggest that you are the just hand.

Note: If you are neck-deep in a business near partners or employees, the same percent contribution is required for all team who are over and done with age 21, have worked in the enterprise in at lowest three of the past v time of life and ready-made at lowest $450 (2006). Other technicalities may utilize.

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The Rules

1. You can bring up to 25% of your compensation, thesis to a largest. This maximum is indexed; for 2006 it was $44,000 and for 2007 $45,000.

2. Assuming the SEP IRA's tax period is the calendar year, contributions can be ready-made up until April 15th of the ensuing year, when the tax official document is due.

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3. You can alter up until you are 70 1/2, but not ancient history.

4. Withdrawals past age 59 1/2 are question to the 10% early dispersal punishment tax unless one of the exceptions utilise.

5. You have to arrival taking the rites out (RMDs) at age 70 1/2.

The Benefits

1. SEP IRAs are undecomposable. Essentially SEPS are big IRAs. There is extraordinarily littlest paperwork.

2. They are limber. You can come and go the amount you modify all period of time from zero all the way up to the year's top input ceiling.

3. The utter sharing reduce is indexed which allows much to be contributed each year.

4. Employer contributions are across the world not thesis to FICA (Social Security tax), FUTA (federal job loss tax) or wealth tax withholding.

5. As an member of staff of your SEP IRA, you credibly can net allowable contributions as ably. These contributions have the same effort ends as orthodox IRAs. For 2006 and 2007, this is $4,000. If you are age 50 or over, you can add another $1,000. However, if you sort too much money, your effort largest is either decreased or eliminated.

6. You can be a associate in a well-qualified design (for example, a 401(k)) at labour and fixed be able to modify to your SEP IRA supported on your extracurricular funds. Again, this is a control of your return and idea to the step out rules discussed down.

Phase-Out Rules

1. First, these rules employ if you are a participant in another qualified mean. Note that having a SEP IRA puts you in this class.

2. Your takings and your tax filing status discover the phase-out. Technically, this is "modified used to gross income" (MAGI) which is in the swing of things total yield beside secure adjustments. See your businessperson.

3. If you record a communal tax revisit and have a MAGI of $75,000 or less (2006), you can clear a crammed worker contribution: $4,000 or $5,000 if you are 50 or aged. If your MAGI is concluded $85,000, no try can be made. A partial effort technique determines the largest permitted endeavour for incomes relating $75,000 and $85,000.

4. If you profile a unique tax return, you can formulate a chuck-full SEP IRA member of staff contribution if your MAGI is $50,000 (2006) or below and no participation for incomes of $60,000 (2006) or more. Again, for incomes involving these numbers, a method determines a partial membership decrease.

5. If you are mated and report a pull apart return, the phase-out starts at an income of nothing. Adjusted gross yield of $10,000 or more does not permit any gift.

These benefits and rules of SEP IRAs are supported on my comprehension and cannot be used as tax proposal. The tight-laced tactic will depend on your goals, income, tax submission status, and your connection in different well-qualified mean. It would be unexceeded to sit lint with your controller and business someone and do the science on all your options.

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