Investing Terms
   401k Plan
   403 Plan
   529 Plan
   12b 1
   ADR
   Agency Bonds
   Annuity
   Asset Management
   Bear Spread
   Bond Yield
   Bull Spread
   Call Option
   Closed End Fund
   CMO
   Commodities Broker
   Convertible Bonds
   Covered Call Option
   Current Yield
   Custodial Account
   Debit Spread
   Defined Benefit Plan
   Defined Contribution Plan
   Diagonal Spread
   Dividend
   Eurodollar
   Fixed Annuity
   Foreign Currency Option
   General Obligation Bond
   Growth Fund
   Hedge Fund
   Horizontal Spread
   Income Fund
   Independent Broker
   Index Fund
   Index Option
   IRA
   Interest Rate Option
   Life Annuity
   Limited Partnership
   Margin Account
   Married Put
   Money Market Fund
   Mortgage REIT
   Municipal Bond Investing
   Mutual Fund Investment
   No Load Fund
   Nominal Yield
   Online Stockbroker
   Online Commodity Broker
   Stock Warrant
   Option Spread
   Option Straddle
   Online Real Estate Broker
   Stock Option
   P E Ratio
   Penny Stock Investing
   Portfolio Management
   Preferred Stock Investing
   Private Placement
   Put Option
   Put Bonds
   REIT Investment
   Repo
   Revenue Bond
   Secured Bond
   Short Sell
   SEP IRA
   Subordinated Debenture
   Tax Deferred Annuity
   Treasury Bill
   Treasury Note
   Treasury Bond
   Treasury STRIP
   Trust Account
   UGMA Account
   Unit Investment Trust
   Variable Annuity
   Yield To Maturity
   Yield To Call
   Zero Coupon Bond



   Courses
   Insurance CE
   Marketing Training
   Advertising
   Contact Us
   Home

Learn SEP IRA Accounts

A SEP IRA is a type of IRA for self ownded employed people or small business operated entities. The Simplified Employee Pension can be started by Any business/company owner with 1 or more employees.

Featured Article:

SEP IRA OR 401K - Which One Is Right For You?
By Sean Patrick McGrover

SEP IRA or individual 401k plan... What is the right choice for your company? This article will hopefully answer questions you may have in regards to deciding on what you will want for your company. Both retirement vehicles are beneficial to small companies and allow for the participants to prepare for a better retirement. But what are the differences?

The Simplified Employer Pension Plan typically is for self employed business owners that want to put tax deferred savings aside for retirement. The plan allows for the individuals of the company to contribute up to 25% of their wages or 20% of their net earnings into their retirement savings plan. The total dollar amount per year as of 2010 is $49,000.00. Other benefits of choosing a SEP IRA is:

The paperwork is easy to set up and has low administrative responsibilities
You are investing into a tax deferred vehicle that will allow you to defer your taxes until retirement.
Discretionary contributions (contributions can vary year to year or can be stopped all together based on profitability of the company)

While Simplified Employer Pension Plan's tend to be easy to design and manage, there are additional items to understand. Below are some issues that you will want to take into consideration:

A SEP IRA is funded 100% by the employer, employees do not contribute.
Annually the employer would make a contribution to their own SEP IRA account and to each eligible employee's SEP IRA account.
The percentage contributed into each SEP IRA account is the same percentage for the employer and each eligible employee.
Part time and seasonal employees must be included in the SEP IRA. ( if they have earned $450 or more in the current year, are 21 or older and have worked 3 out of the last 5 years, then, they must be included in the benefits of the SEP IRA)

The Individual 401k or Defined Contribution plan is used by businesses small and large. The 401k plan allows for tax deferred contribution up to $16,500 or $22,000 if you are over the age of 50 ( catch up provision allows for an additional $5500 per year for those over the age of 50) per year and has a profit sharing component that allows for the same benefit as the SEP IRA, whereas, in addition to the $16,500, a participant can also invest up to the 25% of wages or 20% of net earnings into their retirement savings plan. The total tax deferred contributions per year are $49,000.00 ($54,500.00 if over the age of 50 due to a catch-up provision), but with a 401k plan, a plan sponsor or benefit administrator can also design the plan to allow for an additional Defined benefit for its participants. ( I am not going to talk about Defined Benefits in this article, but, I will be writing an article on that in the near future.)

Some of the issues that you will want to consider before setting up a 401k plan are:

Individual 401k plans have greater administrative responsibilities than a SEP IRA
Individual 401k plans have higher fees.
Participants are responsible for their own contributions.
The Sponsor or Administrator may or may not provide matching contributions.
The Plan Sponsor or Administrator becomes a fiduciary and holds a higher degree of risk
The Plan must file a form 5500 annually and may have annual plan audits
The plan has to consider certain tests (Actual Deferred Percentage, Actual Contribution Percentage) to demonstrate non discrimination issues.

The issues mentioned above are issues that typically are handled or assisted with by the Plan Provider, the Investment Advisor and/or the Third Party Administrator. These entities are the support system for all 401k plans.

One other benefit I would like to mention in regards to a 401k plan that is not provided to a SEP IRA is the option of borrowing against your 401k retirement plan. By using your balance as collateral, you as a participant can loan yourself money. IRS rules do not permit a loan in a SEP IRA, but an Individual 401k loan of up to half of the plan's value or up to a $50,000 maximum is allowed.

Lastly, it is important to note that you can convert your SEP IRA to an Individual 401k at anytime. Converting from a SEP IRA to an Individual 401k and transferring retirement assets to the 401k can be accomplished by completing some minor administrative paper work.

Disclosures

* This article is for informational purposes only and does not constitute, and should not be construed as, professional, legal or tax advice. To determine your individual tax situation and specific needs, please consult a professional tax advisor.

* Information contained in this article merely highlight some benefits. There are risks involved with all investments that could include tax penalties and risk/loss of principal.


Copyright American Investment Training, Inc.