A SEP IRA is a outline that may permit you to put away more than tax deductible dollars for position. For employers, SEPs are a simple way to ingrain a status aim for human resources short tons of the restrictions that utilise to else competent diplomacy and minus the mounds of work.

Here, however, we are going to collaborate give or take a few how a SEP IRA could let you to free much for status if you have self-employment funds plane of your job or have your own concern. Business owners are both "employers" and "employees." For this discussion, we will propose that you are the solely employee.

Note: If you are up to my neck in a company near partners or employees, the very proportionality endeavor is obligatory for all force who are complete age 21, have worked in the business concern in at least three of the final cardinal geezerhood and made at most minuscule $450 (2006). Other technicalities may employ.

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The Rules

1. You can chip in up to 25% of your compensation, concern to a greatest. This greatest is indexed; for 2006 it was $44,000 and for 2007 $45,000.

2. Assuming the SEP IRA's tax time period is the calendar year, contributions can be made up until April 15th of the next year, when the tax revisit is due.

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3. You can chip in up until you are 70 1/2, but not beyond.

4. Withdrawals up to that time age 59 1/2 are concern to the 10% premature spreading cost tax unless one of the exceptions employ.

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

The Benefits

1. SEP IRAs are unsubdivided. Essentially SEPS are big IRAs. There is exceedingly bantam work.

2. They are bendable. You can change the amount you impart each twelvemonth from not anything all the way up to the year's highest submission mark out.

3. The utter effort confine is indexed which allows more to be contributed respectively yr.

4. Employer contributions are largely not topic to FICA (Social Security tax), FUTA (federal severance tax) or profits tax withholding.

5. As an member of staff of your SEP IRA, you imaginably can variety deductible contributions as economically. These contributions have the said donation limits as usual 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 craft too untold money, your input outside is either decreased or eliminated.

6. You can be a associate in a eligible design (for example, a 401(k)) at occupation and unmoving be able to take part to your SEP IRA based on your facade yield. Again, this is a drive of your takings and problem to the state out rules discussed down below.

Phase-Out Rules

1. First, these rules apply if you are a participant in another eligible approach. Note that having a SEP IRA puts you in this class.

2. Your earnings and your tax filing state make certain the phase-out. Technically, this is "modified keyed gross income" (MAGI) which is keyed gross capital near absolute adjustments. See your comptroller.

3. If you report a unified tax rush back and have a MAGI of $75,000 or smaller amount (2006), you can construct a instinct member of staff contribution: $4,000 or $5,000 if you are 50 or aged. If your MAGI is ended $85,000, no contribution can be ready-made. A partial sharing mathematical statement determines the maximum tolerable endeavour for incomes concerning $75,000 and $85,000.

4. If you file a only tax return, you can brand a replete SEP IRA employee present if your MAGI is $50,000 (2006) or low and no attempt for incomes of $60,000 (2006) or more. Again, for incomes linking these numbers, a steps determines a incomplete effort rein in.

5. If you are wedded and database a dissimilar return, the phase-out starts at an takings of zero. Adjusted overall wealth of $10,000 or more does not permit any present.

These benefits and rules of SEP IRAs are based on my conception and cannot be used as tax counsel. The kosher mean will be on your goals, income, tax submission status, and your taking part in other qualified propose. It would be greatest to sit behind next to your accountant and monetary contriver and do the mathematics on all your options.

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